Daily Archives: January 12, 2009

Chinese Government to buy 300,000T of aluminium

Written by Paul Adkins

The following article appeared recently in the Chinese national news agency Xinhua. Whenever a government intervenes in a market, the repercussions can be felt for years after. In this case, the metal will not actually be consumed, but will sit in warehouses waiting for the day that Government policy changes and the metal is released back into the market.

As well, 300,000T is not large enough to be important. China produces around 1m tonnes per month, so this initial volume is the equivalent of about 1 week. So, my own opinion is that this move does not make a whole lot of strategic sense. Perhaps one week is about how long the impact of this move will last.

State reserve agency stockpile to buoy aluminum sector
Updated: 2008-12-27 14:01
China’s State Reserve Bureau (SRB) will buy 300,000 tons of aluminum at 12,300 yuan (about $1,750) per ton in January 2009 to push up prices and support producers, Friday’s Shanghai Securities News reported.
The price represents a 10-percent premium on current market levels.
The SRB will buy about half of the total from Aluminum Corporation of China (Chalco), a listed arm of State-owned metals firm Chinalco. The rest will come from seven other smelters, sources told the newspaper.
Several sources said officials were still discussing further purchases, which could total 1 million tons.
The SRB maintains stockpiles of key raw materials.

This is the government’s first move in the current market crisis to prop up the ailing nonferrous metals industry. Slumping prices and weak demand, due to the global economic crisis and China’s own slowdown, have forced smelters to slow production and cut jobs.
On Wednesday, Zhang Ping, minister in charge of the National Development and Reform Commission (NDRC), delivered an economic report to the Standing Committee of the National People’s Congress, the top legislature.
Zhang said that the central government will take immediate measures to support nine industries, including the nonferrous metals sector.
Governments at all levels immediately announced policies to aid the smelting sector, including relaxed export controls, stockpiling metals, offering electricity subsidies and raising loan ceilings.
The southwestern province of Yunnan said it would buy 1 million tons of nonferrous metals from local smelters and neighboring Sichuan province said it would cut electricity prices for smelters.
Immediate impact on price,confidence
These measures have had an immediate impact on the market, with Shanghai aluminum futures up 0.5 percent to a three-week high.
Analysts said the metals industry in general is regaining confidence as a result of the purchase plan, as well as increased demand for steel by promoting infrastructure construction.
“Although the market trend won’t soon reverse, these procurement plans do help companies tide over the crisis,” said Heng Kun, an analyst at Essence Securities.
Company inventories of aluminum are estimated at about 1 million to 1.5 million tons, industry sources said.
Zhang of the NDRC said procurement and reserves are “key measures” of the State Council, or Cabinet, to boost market confidence.
According to the National Bureau of Statistics (NBS), the profits of the non-ferrous metal and processing industry fell 34.1 percent year-on-year and those of the iron and steel industry by 13.7 percent during the first 11 months of 2008.
On Thursday, the same day as the NBS announced the profit slump and the SRB announced the procurement plan, Bao Steel Group, China’s top steel maker, raised its February steel prices by 100 yuan/ton to 300 yuan/ton.
That was Baosteel’s fifth price adjustment since August but only the first raise in that period.
In November, China decided to launch a 4 trillion yuan stimulus plan to boost domestic demand over the next two years.
Combined with another 3 trillion yuan for railway construction and post-quake reconstruction, the investments are expected to increase steel demand by 200 million tons.

Indicators bode well for GDP

Written by Paul Adkins

Here is an article which appeared in last week’s China Daily. Although it is always likely that China’s press will “talk up” the economic situation, there is grounds for believing at least some of what the journalist reports.

Indicators bode well for GDP
By Lillian Liu (China Daily)
Updated: 2009-01-07 11:54

Despite its growth rate slowing by a third, the Chinese economy has the potential to grow by 8 percent this year, as the manufacturing sector recovers and energy consumption showed signs of increasing late last year, according to economists with investment bank Credit Suisse.
“We saw a sudden collapse in investor confidence in China, especially in the fourth quarter of last year, but we recognize that the Chinese economy could reach the turning point,” said Dong Tao, chief regional economist, Credit Suisse. He cited the central government’s stimulus measures as key support for economic recovery.
Goldman Sachs, however, doesn’t share this optimism. The company revised the 2009 growth outlook for China from 7.5 to 6 percent, citing domestic problems such as the tightened credit policy for property developers.
The purchasing managers index, an indicator of the economic health of the manufacturing sector, rebounded to 41.2 in December from a record low of 38.8 in November.
The power consumption and trade finance conditions also seem to have improved last month, Tao told reporters at a press conference in Hong Kong yesterday.
He said that Beijing has launched many effective measures, and the next round of stimulus measures, which may be announced by the Chinese lunar New Year, could include raising the ceiling on tax-free income to boost consumption.
“We think the government will attempt to bolster rural consumption by increasing minimum grain procurement prices,” said Jing Ulrich, managing director and chairwoman of China equities at JP Morgan Chase.
In China, macroeconomic policy has now fully shifted to stimulating the economy and maintaining the GDP growth at around 8 percent, Ulrich said at a 2009-outlook press conference last month. A growth of less than 8 percent, she added, raises the risk of unemployment significantly.
Credit Suisse predicts the economy will remain gloomy in the first half of this year, with GDP growth reaching 7.1 and 7.6 percent in the first and second quarters, respectively.
But that growth is expected to hit 8.3 percent in the third quarter and 8.6 percent in the fourth, the firm forecasts.
But economists at Goldman Sachs suggest that the slowdown will be greater than during the Asian financial crisis or the 2001 dotcom bust.