China March commodity output slows, fans soft recovery fears

Publish time: 16th April, 2013      Source: ChinaCCM
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Chinese steel production and crude oil runs unexpectedly fell in March from a month ago, with lacklustre power generation and appetite for oil also fanning concerns that recovery in demand may be less vigorous than expected.
Swollen inventories of copper and coal held by traders, along with high steel stocks locked up at mills, have also prompted analysts to warn that the supply of key commodities may outpace demand, in turn putting a lid on China's import appetite in the coming months.
The soft commodity output numbers came as broader data showed China's economic recovery stumbled in the first three months of 2013, as the annual rate of growth eased back to 7.7 percent from the 7.9 percent pace set in the final quarter of last year.
Other data released alongside GDP showed industrial output grew 8.9 percent in March from a year ago, below expectations of 10.0 percent in a Reuters poll.
"For steel, there is no doubt that demand has picked up in the last few weeks, but the main question now is whether the recovery can draw down steel inventories quickly enough to prevent a big overhang at the end of the demand cycle," said David Berman, an iron ore swaps trader at Swiss Singapore.
China produced 2.14 million tonnes of crude steel per day in March, down 3.2 percent from the previous month, with mills still cautious about the prospects of a seasonal pick-up in demand, data from China's statistics bureau showed on Monday.
Monthly output was still 6.6 percent higher than the same period last year, but product stockpiles soared to record levels in March.
The disappointing production numbers, which also showed China's implied oil demand falling to its lowest in seven months, led to a broad-based sell-off of risky assets, with Shanghai steel futures down more than 3 percent and Brent crude futures dropping more than $2 to hit a fresh nine-month low.
China will issue base metals production data on Tuesday.
Reflecting cooling economic activity, China's power generation rose 2.1 percent from a year earlier in March, its weakest positive growth in six months.
Lethargic power demand by industrial users, which account for nearly 90 percent of China's total energy consumption, has already hit domestic coal prices and caused inventories at ports and power plants to build.
Implied oil demand in the world's second-largest oil consumer rose 3 percent in March from a year earlier, but stood at its lowest since August 2012 at about 9.72 million barrels per day (bpd), according to Reuters calculations.
That came as refiners scaled back crude runs and sharply raised exports of fuel -- diesel in particular -- in March and April, to ease swelling stocks.
Crude oil throughput in March fell 2.3 percent from the month before to 40.83 million tonnes, or about 9.61 million barrels per day (bpd).
Still, some analysts said the sell-off had been overdone, with orders from end-users picking up in April as the slowing economic recovery was not captured in first-quarter data.
"Air conditioner copper tube manufacturers have seen more orders and are beginning to replenish copper from traders. Steel inventories have also stopped climbing, which means demand is recovering," said Judy Zhu, a commodities analyst at Standard Chartered Bank.
"The overall sentiment from end-users is pretty optimistic and China's economy is on track for a moderate recovery. We remain mildly bullish on commodities demand."
Strong real estate investment, which rose 20.2 percent in the first quarter from the same period a year earlier, combined with a jump in liquidity in the first quarter, could accelerate recovery momentum in the next quarter, analysts said.
Sheng Laiyun, spokesman at the National Bureau of Statistics, told a news conference that he was confident that China would achieve this year's growth target of 7.5 percent.