Considered as the second largest economy in the world, market players pay attention in the upcoming industrial production data of China. Among the emerging economies, China is one the hottest cards on the table of the world market. With its huge trade links and profound influence in the global financial sector, its economic recovery highly matters.
For the last few months, a number of experts showed doubts on the ability of the mainland China to take its economy to the next level. Moody’s analysts noted that the overall trend remains flat; overcapacity in heavy industry, expectations of a lower yuan, and the steady deceleration in GDP growth are weighing on capital inflows. Can the upcoming Chinese data change the course of the economy?
After the surprising ramp up of manufacturing activity last month, the industrial report is anticipated to bring more certainties in the strength of the demand for metals. It could also burst signal for what is coming on the market in the coming months.
Based on the estimates of a mining and energy commodities analyst at the Commonwealth Bank, the net steel product exports fell 9.3% y/y and 13.8% m/m to 7.2 million tonnes in August, the lowest level since February. He added that China’s steel exports may finally be responding to trade barriers put in place by countries like US, Europe and India, as they try to protect their respective domestic steel industries.
On one hand, if the given figures were caused by the slowdown of the steel production, then the demand would be at stake. On the other hand, if the low numbers were only due to the narrow domestic export growth, then it is safe to conclude for a bullish demand for the metals and a sound economic growth in general.
Data showed that more than 300 steel companies lost 12 percent to 1.5 trillion yuan on their sales revenue, but their profits stood at 16.3 billion yuan, in the hype of steel price hike. Initially, China plans to reduce steel capacity by 45 million tons by the end of 2016- as of July around 50 percent was cut.
During the session earlier, most of the precious metals were on the downside. The yellow metal lost 0.24 percent, while silver dropped 1.66 percent. The red metal, copper, declined 1.12 percent, while crude oil and Brent oil plunged 1.48 percent and 1.21 percent respectively.
Although, copper plummeted at the session, the demand for the buying interest for the red metal surged. The demand for copper was supported by a jump in premiums from $45 to $50 the previous week. Recovering from four-year lows, the metal could have been moving forward after the remarkable summer factory lull.
Standard Chartered recently reported “We believe this reflects improving onshore demand in September, supported by both seasonal trends and a rebound in activity in southern China following flood-related disruptions in July. Feedback from fabricators onshore also points to a pick-up in orders from the construction sector in recent weeks.”
In July, the industrial production increased by 6.0 percent on a yearly basis following the 6.2 climb the prior month. On the other hand, the mining sector dropped 3.1 percent, while manufacturing rolled up by 7 percent. Further to this, fixed investment jumped 8.1 percent in the first half of the year, still high despite the market prediction of 8.8 percent improvement.
The FSM News Group of Analysts was looking for a surge of 7 percent on an annual basis in the coming industrial data this Tuesday; given the demand for the metals persist. For more than two decades, China had an average of 12.57 percent of its industrial production and the mainland could pop up more. The fact that the likelihood of a rate hike was being questioned, commodities could find a perfect opportunity to roar. All that’s left to do is to make sure that the trade balance is met, keep the interest of the consumer and its recovery will follow.