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Shanghai - China’s falling steel and power output in September, coupled with a meagre increase in implied oil demand, show that a year-long monetary tightening campaign and economic woes in the West have begun to pinch.
A confluence of bearish factors in the fourth quarter, including a seasonal slowdown in domestic activity as well as worsening export growth, will combine to sap China’s demand for a raft of commodities, analysts said.
Steel output in the world’s top producer shrank 3.5% from August to 56.7 million tonnes in September, its lowest in seven months. Power generation, a bellwether of China’s industrial activity, dropped 9.4% from a month ago to a four-month low of 386.1 billion kilowatt hours.
Implied oil demand in the world’s No. 2 oil consumer rose a tepid 1% over a year earlier to about 8.9 million barrels per day, the lowest rate so far this year, according to Reuters calculations based on preliminary official data released on Tuesday.
“The September output numbers, along with GDP data, suggest that the slowdown has only just begun,” said Henry Liu, a commodities analyst at Mirae Asset Securities in Hong Kong.
“There is worse to come as industrial activity slows further in winter months and the export sector gets hit harder.”
China’s economic expansion slowed to 9.1% in the third quarter, its third straight quarter of cooling growth and its weakest expansion since early 2009.
UBS economist Wang Tao said China’s growth was bound to slow further as export growth could fall to as low as single-digit increases by 2012.
The latest set of disappointing Chinese data was enough to give traders some pause on riskier assets.
Three-month copper on the London Metal Exchange fell for a second day, zinc tumbled the most in more than two weeks, oil prices shed more than half a percent and spot gold dropped 0.5%.
The recent idling of some production by major steel mills such as China’s Anshan Iron & Steel, along with news of other mills re-negotiating fourth-quarter iron ore contract terms, are also painting a bearish picture of winter demand.
A slowing China is a potential pothole for smaller open economies such as Australia, Brazil and India that rely heavily on exports of commodities such as iron ore.
No signs of monetary easing
Although a stream of economic data, including this week’s trade data, have pointed to growth moderating, analysts said overall robust domestic demand and still lofty inflation rates would prevent the government from embarking on an easing cycle.
That means liquidity will remain tight and costs for trade finance would stay high over the next 3-6 months - a combination that would hurt steel and copper traders’ ability to restock when commodities prices fall. The reluctance by banks to lend could also begin to hit more end-users.
Local governments are also affected by the liquidity crunch. China’s road construction is facing unprecedented capital shortages, with some provincial governments failing to pay engineering companies for two to three consecutive months, the official People’s Daily reported on Tuesday.
“I don’t think they will make any move (in rates) in the near term. Then maybe after a few quarters, towards the middle of next year, if everything is OK, I think they will continue to hike interest rates, not cut interest rates,” said Ting Lu, economist at Bank of America-Merrill Lynch in Hong Kong.
A confluence of bearish factors in the fourth quarter, including a seasonal slowdown in domestic activity as well as worsening export growth, will combine to sap China’s demand for a raft of commodities, analysts said.
Steel output in the world’s top producer shrank 3.5% from August to 56.7 million tonnes in September, its lowest in seven months. Power generation, a bellwether of China’s industrial activity, dropped 9.4% from a month ago to a four-month low of 386.1 billion kilowatt hours.
Implied oil demand in the world’s No. 2 oil consumer rose a tepid 1% over a year earlier to about 8.9 million barrels per day, the lowest rate so far this year, according to Reuters calculations based on preliminary official data released on Tuesday.
“The September output numbers, along with GDP data, suggest that the slowdown has only just begun,” said Henry Liu, a commodities analyst at Mirae Asset Securities in Hong Kong.
“There is worse to come as industrial activity slows further in winter months and the export sector gets hit harder.”
China’s economic expansion slowed to 9.1% in the third quarter, its third straight quarter of cooling growth and its weakest expansion since early 2009.
UBS economist Wang Tao said China’s growth was bound to slow further as export growth could fall to as low as single-digit increases by 2012.
The latest set of disappointing Chinese data was enough to give traders some pause on riskier assets.
Three-month copper on the London Metal Exchange fell for a second day, zinc tumbled the most in more than two weeks, oil prices shed more than half a percent and spot gold dropped 0.5%.
The recent idling of some production by major steel mills such as China’s Anshan Iron & Steel, along with news of other mills re-negotiating fourth-quarter iron ore contract terms, are also painting a bearish picture of winter demand.
A slowing China is a potential pothole for smaller open economies such as Australia, Brazil and India that rely heavily on exports of commodities such as iron ore.
No signs of monetary easing
Although a stream of economic data, including this week’s trade data, have pointed to growth moderating, analysts said overall robust domestic demand and still lofty inflation rates would prevent the government from embarking on an easing cycle.
That means liquidity will remain tight and costs for trade finance would stay high over the next 3-6 months - a combination that would hurt steel and copper traders’ ability to restock when commodities prices fall. The reluctance by banks to lend could also begin to hit more end-users.
Local governments are also affected by the liquidity crunch. China’s road construction is facing unprecedented capital shortages, with some provincial governments failing to pay engineering companies for two to three consecutive months, the official People’s Daily reported on Tuesday.
“I don’t think they will make any move (in rates) in the near term. Then maybe after a few quarters, towards the middle of next year, if everything is OK, I think they will continue to hike interest rates, not cut interest rates,” said Ting Lu, economist at Bank of America-Merrill Lynch in Hong Kong.
