Black China Blog

The following article comes from Reuters.

The pace of Chinese manufacturing eased last month, suggesting slower government spending and steps to curb credit growth could be taking some of the steam out of the world’s third-largest economy. But a pair of surveys of purchasing executives showed the economy remained firmly in expansionary territory, and economists were wary of reading too much into the reports.

Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong, said the timing of the Chinese New Year holidays complicated interpretation of data early in the year. “Policymakers are driving with low visibility on the Chinese activity data at the moment,” he said in a note. “So it would be premature to conclude that today’s fall in the headline PMI numbers show a broader easing in the momentum of China’s recovery.”

The Purchasing Managers’ Index (PMI) derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS) fell to 52.0 in February from 55.8 in January. It was the 12th straight month that the PMI has stood above the threshold of 50 that demarcates growth from contraction, but the reading was well below the median forecast of 55.45 in a Reuters poll of 10 economists.

The Australian dollar dipped and copper prices pared their gains after the data, which markets took as a sign Chinese demand for metals and other commodities might be softening. Shanghai stocks, however, climbed in step with other Asian markets.

An index derived from separate survey conducted by the research firm Markit for HSBC fell less sharply. It dipped to 55.8 from a record high of 57.4 in January.

Economists reckon the HSBC survey appears to better track current conditions, while the NBS PMI seems to lead economic activity by about one or two months. Qu Hongbin, chief economist for China at HSBC, said he was not worried by the dip in the PMI. “Growth momentum for China’s manufacturing sector remains strong, pointing to a further acceleration in industrial activities in the coming quarters,” he said in a statement.

China’s central bank has already ordered banks twice this year to keep a greater proportion of their deposits in reserve, prompting global market fears of an aggressive tightening that could slow the world’s fastest-growing major economy. But Premier Wen Jiabao said on Saturday that China would stick to an appropriately loose monetary stance as Beijing navigated the shoals of what promised to be the most complicated year so far this century for China’s economy.

 ”I believe we can keep stable and relatively fast economic growth while controlling prices at a reasonable level,” Wen said in an online chat.

The official PMI survey showed output and new orders remained above the boom-bust line of 50. But backlogs of orders, employment and stocks of purchases all fell below that mark. “While still in expansion, overcapacity in manufacturing, wage pressure and more restrained government spending may have affected sentiment among purchasing managers,” said Jing Ulrich, chairman of China equities and commodities at JPMorgan.

Zhang Liqun, an economist with an official think-tank, said the economy was still on a sustainable recovery course, driven by government stimulus, but faced a number of uncertainties. The drop in overseas orders gauge last month deserved particular attention, he said. The new export orders sub-index fell to 50.3 from 53.2 in January. “It shows we still need to be cautious about the export outlook,” Zhang said in a commentary released by the logistics federation.

But HSBC’s new export orders sub-index rose to 58.3 in February, a near five-year high, from 58.1 in January. Ulrich said signs of an export recovery were broadening and could be found in rising container shipping rates, reports of labour shortages in coastal manufacturing hubs and renewed political pressure for the yuan to rise. “Although the nascent recovery in external demand bodes well for China’s export manufacturers, the prospect of rising wages suggests that companies with high labour costs could experience margin pressure,” she said in a note to clients.

Source: Business Standard

India’s aluminium industry may be moving towards overcapacity, since supply is likely to grow in excess of demand going forward. Considering that all aluminium projects would begin commercial production with expanded capacity as planned, there could be at least two million tonnes of additional capacity for exports by 2013.

“India’s aluminium production will more than treble to 4.4 million tonnes by mid-2012 with new capacities coming on stream, along with requisite captive power generation capacities,” stated a Fitch Ratings report recently.

Vedanta, Hindalco and Nalco together produced 1.5 million tonnes of the metal for the year ended 31 March 2009, a growth of 9 per cent year on year. Though higher cost capacities were shut down (in Vedanta’s subsidiaries Balco, Malco and Vedanta Aluminium) to the extent of 0.14 million tonnes, additional capacities from Vedanta Aluminium Ltd in Orissa, along with incremental capacity expansions at Nalco and Hindalco compensated for the loss. For eight months between April and November 2009, total aluminium produced was 0.98 million tonnes, a rise of 16.6 per cent over the corresponding period in the previous year.

“Although demand outlook for aluminium is likely to grow in line with the economy, supply is estimated to grow far in excess of demand, resulting in overcapacity in the domestic market over 2011-2013,” the report added. Large power and housing projects, which use aluminium extensively, depend largely on growth in economy and, thus, spur consumption of the metal.

According to an Icra report, “With sharp increase in capacity over 2010-13, India will start massive export of aluminium. The country could by 2013 be an annual exporter of 2 million tonnes of the metal, assuming the planned capacity expansions become operational as currently envisaged.” It added that the current demand-supply situation for aluminium was largely balanced with consumption in line with existing production, and a relatively small volume of exports.

India’s per capita consumption of aluminium is 1 kg as against 30 kg in the developed world, it stated in the report. “The industry is exploring new application areas and untapped demand potential, which may result in greater preference for aluminium in the future,” Icra added.

The expansion projects are subject to execution risk given their scale, greenfield nature, and regulatory risks with regard to mining approvals. These could delay some of the projects, or postpone indefinitely. However, the risks are partly offset by the fact that the new capacity would have low, globally competitive costs once operational. The surplus production would be exported.

Wednesday night is always a welcome night at TMS. It is the end of the round of meetings, with just a few leftover meetings for those who (like us) couldn’t fit them all in the space Saturday to Wednesday. It is the night that we can all finally relax, whip off the tie, kick off the shoes, throw the jacket over the back of the chair, and kick back.

Ah, feel the relief (he says, sipping a glass of red wine, barely minutes after finishing the last meeting).

There’s only one change that I would like to see. Those people leaving early should be given a secret exit from the hotel, so that the rest of us don’t have to see them leave. This afternoon, waiting for my 3pm meeting, I noticed Ivo looking very relaxed, suitcase in tow, heading for a taxi. Damn, I wish that was me, I thought. So a secret exit for the early leavers, or a rule that they leave prior to 6am.

Next year, I am going to book my meeting with Ivo for Thursday morning.