Sea-borne iron ore drops marginally in the week
Sea-borne iron ore was broadly rangebound in the week’s trade, depicting marginal decline week on week as steel prices in China declined. However, the buying interest improved slightly as the traders were looking to acquire position.
Looking at the benchmark for seaborne spot iron ore prices, Platts assessed the 62% Fe IODEX & TSI Iron Ore Fines at $66.40/dmt CFR North China on Friday. Meanwhile, TSI 58% Fe Fines, 1.5% Al, CFR Qingdao port closed the week at $56.40/dmt.
Futures Trade
At Dalian Commodity Exchange, the iron ore futures edged up after a three-day fall. It gained 0.3 percent to 490.5 yuan a tonne.
The most-traded coking coal futures on the Dalian Commodity Exchange fell 2.2 percent to 1,290 yuan a tonne on Friday, although stringent environmental checks in major coking coal producing regions curbed output of the fuel.
Coke contract for January delivery lost 0.4 percent to 2,544 yuan a tonne after a report on Wednesday said regulators were probing the industrial association for allegedly monopolising coke prices.
Meanwhile, the benchmark Shanghai rebar on Wednesday hit 4,418 yuan ($642.71) a tonne, its highest in nearly seven years. It closed 0.5 percent higher at 4,334 yuan a tonne on Friday. ssHowever, the most-active steel contract marked its worst week since early July, down 1.2 percent, as investors locked in gains
Japan’s export growth slows as U.S.-bound car shipments fall
Japan’s export growth slowed in July, with shipments of cars to the United States sinking and as global trade disputes cast doubt over demand for products from the world’s third-biggest economy.
Exports rose 3.9 percent from a year earlier, Finance Ministry data showed on Thursday, well below the 6.3 percent increase forecast by economists in a Reuters poll and slowing from June’s 6.7 percent increase.
Japan’s exports to the United States fell 5.2 percent, a second straight decline, paced by a 12.1 percent fall in car shipments.
There were no immediate signs that trade tensions with Washington have affected Japan’s auto sector, but analysts say external risks are increasing.
“While caution is heightening over U.S. trade policy, U.S. car sales are leveling off, causing Japan’s car exports to the United States to level off as well,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“If capital outflows from emerging economies accelerate on top of this, it would cause a marked slowdown in the global economy, further weighing on Japan’s exports.”
President Donald Trump is pressing Japan and other nations to reduce their trade surpluses with the United States and has threatened to raise tariffs on the critical auto sector after raising them on steel and aluminum.
Japanese carmakers have shown no sign, though, of rushing to boost car shipments to the United States in anticipation of higher levies.
Imports from the United States rose 11.0 percent in July, led by crude oil, motors and liquefied petroleum gas.
As a result, Japan’s trade surplus with the United States fell 22.1 percent year-on-year to 502.7 billion yen ($4.55 billion).
Exports to China, Japan’s largest trading partner, rose 11.9 percent in July from a year ago.
Shipments to Asia, which account for more than half of Japan’s overall exports, rose 8.0 percent, led by semiconductor production equipment and electronics parts for China and sales of steel to Thailand.
Overall imports rose 14.6 percent in the year to July, roughly matching economists’ median estimate, resulting in a trade deficit of 231.2 billion yen, vastly exceeding the expected 50 billion yen.
Thursday’s trade figures came after gross domestic product (GDP) data last week showed Japan’s economy, the world’s third largest, rebounded in the second quarter from a January-March dip.
Japan’s economy grew at an annualized rate of 1.9 percent in the second quarter on the back of household and business spending, recovering from an earlier contraction.
Source: REUTERS
US economy is expected to accelerate this year, then slow in 2019: CBO
U.S. economic growth will probably accelerate this year before slowing in 2019 to well below the Trump administration’s 3 percent target as a fiscal stimulus fades, congressional researchers projected on Monday.
In an updated economic outlook, the nonpartisan Congressional Budget Office (CBO) projected that inflation adjusted or real gross domestic product (GDP) would grow 3.1 percent this year, exceeding 2.2 percent growth in 2017 due to lower income taxes, increased government spending and private investment.
The government slashed corporate and personal income taxes in January in a $1.5 trillion package and the U.S. Congress passed a $1.3 trillion spending bill in March.
This has buoyed consumer and business spending as well as government outlays, which combined with accelerated soybean exports to lift the economy to a 4.1 percent annualized rate in the second quarter from a 2.2 percent pace in the January-March period. The April-June growth rate was the highest in nearly four years.
But the CBO said it expected growth to slow in the second half as jolts to consumer spending and agricultural exports either fade or reverse. For instance, some second-quarter soybean exports were aimed at beating Chinese tariffs that took effect in July and cut future shipments.
“In 2019, the pace of GDP growth slows to 2.4 percent in the agency’s forecast, as growth in business investment and government purchases slows,” CBO director Keith Hall said in a statement.
Republicans have said the tax cuts, which increased the nation’s debt, would pay for themselves through strong economic growth. The Trump administration has said the economy can sustain 3.0 percent growth over the long term, an assertion many economists have disputed.
The CBO also cautioned that trade tensions could make a bigger dent on GDP growth than anticipated. An escalating U.S.-China trade war could result in tariffs on all goods traded between the world’s two largest economies.
Washington also has traded tariffs with the European Union, Canada, and Mexico.
“When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the U.S. tariffs and foreign retaliatory tariffs that had been implemented at that time would be small,” said Hall.
Tariffs then “affected goods that accounted for less than 1.5 percent of the total value of U.S. trade. However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections.”
From 2023 to 2028, the CBO forecast the economy growing by about 1.7 percent each year.
Source: REUTERS
China nearly quadruples infrastructure approvals in July as growth slows
China almost quadrupled the value of fixed-asset investment projects approved in July from the previous month as Beijing looks to accelerate infrastructure spending to stabilize the cooling economy.
China gave the green light to 17 fixed-asset investment projects in July, worth a combined 77.69 billion yuan ($11.24 billion), Zhao Chenxin, an official at the National Development and Reform Commision (NDRC), told reporters on Thursday.
That compared with approvals for 20.8 billion yuan of spending in June, Reuters calculated from official data.
Beijing is accelerating infrastructure spending and rolling out other support measures for businesses to cushion the economy as it braces for the impact of escalating U.S. trade tariffs.
Data this week showed China’s investment growth has slowed to a record low and consumers are turning cautious on spending.
A sweeping multi-year government crackdown on risky lending and hidden debt has sharply pushed up funding costs and slowed investments in big-ticket government infrastructure projects.
But with the economy starting to lose momentum, the government is now shifting its priorities to more immediate risks to growth.
The government will fine-tune its policies in a preemptive way to keep economic growth within a reasonable range, state radio quoted the cabinet as saying on Thursday.
Efforts will be made to ease financing difficulties facing small firms and widen access for private investment in some sectors, the cabinet was quoted as saying.
When asked by Reuters if the economy has been hurt by deleveraging measures, as suggested by the weak July data, NDRC official Chen Hongwan said the twin goals of sustainable economic growth and debt reduction were not mutually exclusive.
“We can’t just simply say deleveraging is at odds with economic growth,” he said, adding that moves such as forcing “zombie” firms to close were good for the economy and healthier companies in the long run.
However, many deeply troubled companies are state owned with many employees, raising the risk of layoffs.
Beijing has also encouraged such highly indebted firms to enter into debt-to-equity swap agreements as part of the solution to reduce risks in the financial system and heaps of debt.
The NDRC said that 1.73 trillion yuan worth of debt-to-equity swap agreements had been signed as of end-July, although only 352 billion yuan has been transacted.
Under debt-to-equity swap schemes, investors get equity stakes in firms and in exchange the firms are able to lower their debt burden, though the specifics of each deal are different and often complex, making it tough to tell if companies have really been weaned off state life support.
Property still a bright spot
Despite a broad economic slowdown reflected in July data, China’s property market, a key growth driver, has remained a bright spot.
The housing ministry said on Thursday over 990 billion yuan ($143.63 billion) was invested in massive urban redevelopment projects in the first seven months of 2018.
But further stimulus in smaller cities could add to worries about property bubbles and rising household debt.
Moreover, while announcements of big infrastructure projects are starting to come thick and fast, analysts caution they have long lead times and they may not begin to arrest the decline in China’s economic growth until next year.
“The key headwinds were the same as before – slowing investment (especially infrastructure) and an ongoing unwind of shadow credit due to deleveraging measures,” analysts from UBS China wrote in a recent note.
The stream of new stimulus measures and easier credit conditions have raised fears that Beijing is putting debt reduction efforts on the back burner again.
But economists at Nomura believe the country’s policymakers are applying stimulus more cautiously and selectively than in past downturns, keeping much higher debt levels in mind.
Beijing is most likely saving its policy ammunition for September and the fourth quarter, after more sweeping U.S. tariffs take effect, Nomura said in a note this week.
Source: REUTERS
China’s economy on solid footing despite external headwinds
The Chinese economy remains on a solid footing despite a more complicated domestic and external environment, according to the National Bureau of Statistics (NBS).
“The economic performance is generally stable in July, with new progress being made,” Liu Aihua, NBS spokesperson, told a press conference Tuesday.
Dragged by cooling infrastructure investment, growth of fixed-asset investment (FAI) slowed to 5.5 percent in the first seven months of the year, down from 6 percent in the first half of the year and continuing a downward trend since the beginning of the year.
Infrastructure investment growth softened to 5.7 percent in the period, compared with a rise of 7.3 percent for H1.
Liu attributed the slowdown in infrastructure investment to a higher comparative base from last year, the government’s efforts to regulate public-private partnership projects and higher environmental standards.
Retail sales climbed 8.8 percent in July from a year earlier, slightly down from the 9-percent rise registered in June.
Although some indicators showed slight pullback in growth, Liu said the economic structure had been optimizing, with better quality and efficiency, which would lay a sound foundation for growth in the coming period.
Industrial output expanded 6 percent year-on-year last month, unchanged from in June.
A breakdown of the data showed the output of high-tech manufacturing, equipment manufacturing and strategic emerging industries all posted strong growth, which increased 11.6 percent, 9 percent and 8.6 percent respectively.
Industrial profits of major enterprises gained 17.2 percent in H1, accelerating from 16.5 percent for January-May.
In one of the bright spots, private investment, which accounts for about 60 percent of overall investment, rose at a faster pace. FAI by the private sector climbed 8.8 percent year-on-year in the first seven months, up from 8.4 percent in H1.
Employment remained stable, with 8.8 million new jobs being created in the first seven months, fulfilling 80 percent of the government’s annual target. The survey-based urban unemployment rate stood at 5.1 percent in July, 0.3 percentage points higher than June.
Liu said readings of the July data showed the economy had been running within a reasonable range, a hard-won result amid complicated domestic and external environment as well as adverse weather conditions.
As the government vows to improve infrastructure and accelerate approval of projects, Liu said he expected the growth of infrastructure investment and FAI to pick up and stabilize in H2.
Analysts said the continued softness in investment and consumption growth called for more decisive and coordinated policy moves.
“Although we have seen some early signs of financial condition easing and fiscal loosening in July,” the softness of some indicators and higher unemployment rate highlighted the urgency to more timely and coordinated policy adjustments to anchor the growth expectations and backstop the “vicious cycle” of financial condition tightening, CICC analyst Liu Wenqi said.
Looking ahead, Liu Aihua said the government would enhance implementation of policies and strive to keep employment, the financial sector, foreign trade, investment and expectations stable.
Source: XINHUA
China aims to reach annual growth target despite trade war, state planner says
China will keep its economic growth within a reasonable range in the second half of the year, and will ensure that its full-year growth target is achieved, the country’s state planner said on Wednesday.
While the trade frictions with the United States will have a negative impact on the Chinese economy, China will ensure that its annual growth target will be met, said Cong Liang, spokesman at the National Development and Reform Commission (NDRC).
China aims to expand its economy by around 6.5 percent this year. Gross domestic product grew 6.7 percent in the second quarter from a year earlier, slowing from the 6.8 percent pace in the first three months.
Data is increasingly pointing to a cooling economy as an ongoing campaign by Beijing to curb risks in the financial system raises borrowing costs and squeezes small businesses.
To help firms affected by tighter financing, China has taken steps to boost liquidity and has urged banks to extend more loans to companies. It has also affirmed pro-growth fiscal policies.
This week, local governments rolled out railway investment plans as Beijing pushed them to speed up issuance of special bonds to fund infrastructure projects.
As the world’s second-biggest economy slows, China and the United States are imposing tariffs on each other’s goods, with more set to be activated next week. There are few signs that either side is ready to compromise.
So far, official data for January to July shows trade frictions have had limited impact on the economy, and any impact from higher tariffs will be “controllable,” the NDRC’s Cong said.
China’s efforts to ease credit conditions in the economy have sparked concerns that funds would find their way back into the once red-hot real estate sector.
Cong said China would “resolutely curb” property price rises.
Source: REUTERS
Energy Implications of Economic Growth in China and India
China and India are expected to continue witnessing high levels of macroeconomic growth, typically associated with higher energy consumption. According to the EIA’s International Energy Outlook 2018 (IEO2018), Asia is projected to have the largest increase in energy use of non-OECD regions, and this increase will be led by China and India.
Energy consumption in non-OECD countries began exceeding OECD consumption in 2007 and is economy is more balanced between manufacturing and services and is projected to be the fastest growing region in the IEO2018 Reference case,” according to the report.
In the period from the 1980s through the 2000s, China registered double-digit growth in real GDP. Simultaneously, its energy demand more than tripled during the same time frame. However, from 2011 onward, its economic growth has slowed to single digits, and this has been accompanied by reduced energy demand. The Chinese economy, owing to its size, is a key driver of economic growth globally, and variations in Chinese energy consumption (and demand) have impacted worldwide energy market trends.
Over the past decade, the Chinese economy’s industrial segment has transitioned toward the production of more highly specialized goods and general services. This shift was supported by the implementation of China’s 13th Five Year Plan (FYP), which came into effect in March 2016. One key facet of this FYP is to encourage innovation and accelerate research and development spending as a share of GDP. In addition, the plan prioritizes specialized avenues such as high-end equipment and biomedicines and seeks to increase the service sector’s share of GDP to 56 percent by 2020. These changes in industrial structure notwithstanding, the EIA forecasts that China will still comfortably maintain its position as the world’s largest producer of energy-intensive goods in 2040.
India’s Economy Forecast To Be Fastest Growing
India will soon be the world’s most populous country, and its economy is expected to be the fastest growing globally, as per EIA projections. However, over the next two decades, both its aggregate and per capita energy use is still forecast to remain lower than in China, the U.S., and other industrialized countries, despite its economy being the third largest globally (as measured in terms of 2010 purchasing power parity dollars).
According to the report, India’s per capita GDP ($2,525) was about 30 percent lower than that of China in 2000. By 2015, Indian per capita GDP was slightly lower than $5,600, the level of GDP per capita that China exceeded by 2006.
It is expected that India’s economic growth will significantly affect international energy markets given the country’s large population and growth potential. Its government is currently reviewing a set of economic and social programs, including financial reforms and expansions in providing electricity, which could have an extensive impact on both future economic growth and energy demand within the country. Between 2015 and 2040, India’s economy is forecast to grow at about 7.1 percent in real terms.
The slow growth in India’s per capita energy consumption can perhaps be attributed to infrastructure and institutional constraints. That said, India’s industrial sector is still expected to remain the largest energy-consuming end-use sector through 2040.
Looking Ahead
China’s economic health is a crucial element in global trading activity, underscoring the importance of precise forecasts for Chinese economic growth because of its direct and indirect impacts on global projected energy consumption. Both recent and expected reductions in China’s energy intensity are partly due to a gradual shift in the economy’s structure from greater reliance on manufacturing toward more reliance on services.
For India to attain per capita energy consumption levels comparable to other large countries, it must implement radical changes in its production structure, according to the report. India will also have to fuel large increases in energy consumption outside of the industrial sector. Higher levels of energy use could also result in India following major changes in its industrial structure, the report added.
Source: BRINK ASIA
estimated to reach nearly two-thirds of the 739 quadrillion Btu global energy consumption in 2040.
China’s Impact on Global Energy Market Trends
The Chinese economy is expected to deliver an annual average growth rate of 5.7 percent between now and 2040 in two high-growth cases. In the same time period, India’s economy is forecast to grow at an annual average rate of about 7.1 percent across three high-growth cases. “China is currently a manufacturing-based economy whose rapid growth is moderating energy consumption.
India’s industrial production in Q1 saw gradual recovery on base effect
India’s year-on-year growth in the Index of Industrial Production (IIP) in the April-June period for the past five years. Industrial production in April-June 2018 was much better compared with last year. However, it is still lower, compared with the first quarter of FY17, or FY15.
The impact of the base effect is clearly visible—one big reason for the IIP to surge this fiscal year is because of a low base.
Moreover, the chart shows that years of high industrial growth alternate with periods of low growth, which, too, to some extent, is due to the base effect.
But what are the takeaways from the IIP numbers? Infrastructure and the construction goods sector is doing well, which should be good for job growth for the masses; consumer durable production is showing good growth, but that has a base effect and is partly driven by higher personal loans; growth in capital goods is due to a strong base effect; and electricity production is not doing too well.
As a report by Kotak economists Suvodeep Rakshit and Upasna Bhardwaj put it: “Industrial growth has likely troughed and a phase of gradual recovery seems to be underway. On the flip side, this lends strength to the Reserve Bank of India’s argument that the output gap has almost closed, implying that incremental demand growth without commensurate supply-side expansion could be inflationary.”
Source: LIVEMINT
Indian economy to grow at 7.2 per cent in 2018-19, says India Ratings and Research report
Indian economy is projected to grow at 7.2 per cent in 2018-19, India Ratings and Research (Ind-Ra) said. The rating agency earlier forecasted India’s economic growth at 7.4 per in current fiscal. The key reason for this, Ind-Ra said, is the upward revision in the estimation of inflation for 2018-19 due to increasing crude oil prices and the government’s decision to fix the minimum support prices of all kharif crops at 1.5 times the production cost (A2+FL). The rating agency in a report titled ‘Mid-year FY19 Outlook’ said it believes the other headwinds lurking on the horizon are rising trade protectionism, depreciating rupee and, no visible signs of the abatement of the non-performing assets of the banking sector.
“Furthermore, it is taking a tad longer than expected to resolve cases under the Insolvency and Bankruptcy Code. “This simply means ‘bringing the stuck capital back into the production process to enhance the productivity of capital’ will be a long drawn-out affair,” Ind-Ra said. Ind-Ra said it expects private final consumption expenditure to grow 7.6 per cent in 2018-19 compared to 6.6 per cent in 2017-18.
The rating agency pointed out that government capex alone will be insufficient to revive the capex cycle, as its share in the total capex of the economy was only 11.1 per cent during 2012-17. “On the other hand, the share of private corporations was 40.9 per cent. As private corporations in combination with the household sector command 77.5 per cent of the total investment in the economy, their capex revival is a must for a broad-based recovery in the investment cycle,” it observed.
Noting that India will face continued headwinds on the exports front, the rating agency said although it expects the annual value of exports to touch USD 345 billion in the current fiscal, crossing the peak of USD 318 billion attained in 2013-14. Ind-Ra said it expects average retail and wholesale inflation in 2018-19 to come in at 4.6 per cent and 4.1 per cent, respectively, as against 4.3 per cent and 3.4 per cent forecasted earlier. “Ind-Ra expects CAD to widen to USD 71.1 billion in 2018-19 from USD 48.7 billion in 2017-18,” it said.
On rupee, the rating agnecy said that in 2018, rupee has already depreciated 7.7 per cent till July in response to elevated global turbulence, worsening of current account, rising inflation and concerns related to fiscal deficit. Ind-Ra said it has maintained a stable outlook on the finances of Indian states for 2018-19. “Ind-Ra expects the aggregate fiscal deficit of the states to moderate to 2.8 per cent of GDP,” Ind-Ra said.
Source: PTI