Chinese factory output rebounds after stimulus

Updated 12 December 2015

Chinese factory output rebounds after stimulus

BEIJING: China’s activity data was stronger than expected in November, with factory output growth picking up to a five-month high, signalling that a flurry of stimulus measures from Beijing may have put a floor under a fragile economy.

Still, analysts believe more policy steps are needed to weather nagging headwinds from a cooling property market, risks from high domestic debt levels, and weak global demand as financial markets brace for interest rate rises by the US Federal Reserve.
“Real interest rates are still high due to falling producer prices,” Wang Jun, senior economist at the China Center for International Economic Exchanges (CCIEE), a Beijing-based think-tank.
“It’s still necessary to cut interest rates to support economic growth and combat deflation.”
Factory output grew an annual 6.2 percent in November, data from the National Bureau of Statistics(NBS) showed, quickening from October’s 5.6 percent and beating expectations of 5.6 percent.
Growth in China’s fixed-asset investment, one of the main drivers of the economy, rose 10.2 percent in the first 11 months, unchanged from the gain in January-October, and higher than an expected 10.1 percent rise.
Retail sales grew an annual 11.2 percent in November — the strongest expansion this year — compared with 11.0 percent in October. Analysts had forecast 11.1 percent growth in November.
“While low base could be the factor driving the headline growth, we still have to acknowledge that China’s data are illustrating signs of stabilization, albeit at a low level,” said Zhao Hao, senior economist at Commerzbank in Singapore.
The data came after weak trade and inflation readings earlier this week, which underscored the persistent slack in the economy.
The world’s second-biggest economy has been hit by weak demand at home and abroad, factory overcapacity and challenges posed by its transition to a consumption-led growth model from one reliant on investments.
With the Fed poised to raise interest rates for the first time in almost a decade at next week’s review, the risk of intensifying capital outflows has added to Beijing’s policy challenge.
Premier Li Keqiang has recently pledged to step up “supply-side” reform to generate new growth engines in the economy while tackling factory overcapacity and so-called zombie firms.
With its trade sector ailing, there are also signs China is ramping up efforts to send more excess production abroad with tax cuts for the export sector.
China’s output of key industrial commodities including coal and steel remained weak in November amid chronic oversupply as slowing construction demand took its toll.
Over the past year Chinese authorities have launched the most aggressive policy stimulus since the 2008/09 global financial crisis, including cutting interest rates six times since late 2014 and lowering bank reserve requirements.
They have also taken other steps, including an announcement on Friday to lock-in more investments as Beijing tries to put a floor under the economy.
But the government has been struggling to reach its economic growth target of around 7 percent this year, which would be the weakest pace in a quarter of a century. Many analysts suspect actual growth is lower than official figures suggest.
A cooling property market has weighed heavily on China’s economy over the past year. Home sales and prices have increased in bigger cities over recent months, helped by a barrage of government measures.
Data issued by the statistics bureau on Saturday showed property investment grew 1.3 percent in the first 11 months of 2015 from a year earlier, slowing from 2.0 percent rise in January-October and hitting the weakest pace since early 2009.


WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

Updated 24 January 2021

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

Oil prices have been stable since early January, with Brent crude price hovering around $55. Brent crude closed the week slightly higher at $55.41 per barrel,
while West Texas Intermediate (WTI) closed slightly lower at $52.27 per barrel.

Oil price movement since early January in a narrow range above $50 is healthy, despite pessimism over an increase in oil demand, while expectations of US President Joe Biden taking steps to revive energy demand growth are
still doubtful. The US Energy Information Administration (EIA) reported a hike in US refining utilization to its highest since March 2020, at 82.5 percent. The EIA reported a surprise weekly surge in US commercial crude stocks by 4.4
million barrels. Oil prices remained steady despite the bearish messages sent from the International Energy Agency (IEA), which believes it will take more time for oil demand to recover fully as renewed lockdowns in several countries weighed on oil demand recovery.

The IEA’s January Oil Market Report came as the most pessimistic monthly report among other market bulletins from the Organization of the Petroleum Exporting Countries (OPEC) and EIA. It forecast oil demand will bounce back to 96.6 million bpd this year, an increase of 5.5 million bpd over 2020 levels.

Though the IEA has lowered its forecast for global oil demand in 2021 due to lockdowns and vaccination challenges, it still expects a sharp rebound in oil consumption in the second half of 2021,
and the continuation of global inventory depletion.

The IEA reported global oil stocks fell by 2.58 million bpd in the fourth quarter of 2020 after preliminary data showed hefty drawdowns toward the end of the year. The IEA reported OECD industry stocks fell for a fourth consecutive month at 166.7
million barrels above the last five-year average. It forecast that global refinery throughput is expected to rebound by 4.5 million bpd in 2021, after a 7.3 million bpd drop in 2020.

The IEA monthly report has led to some short term concern about weakness in the physical crude spot market, and the IEA has acknowledged OPEC’s firm role in stabilizing the market.

Controversially, the IEA believes that a big chunk of shale oil production is profitable at current prices, and hence insinuated that shale oil might threaten OPEC market share.

It also believes that US shale oil producers have quickly responded to oil price gains, winning market share over OPEC producers. However, even if US shale oil drillers added more oil rigs for almost three months in a row, the number of operating rigs is still less than half that of a year ago, at 289 rigs.

The latest figures from the Commodity Futures Trading Commission show that crude futures “long positions” on the New York Mercantile Exchange are at 668,078 contracts, down by 18,414 contracts from the previous week (at 1,000 barrels for each contract).