Resources Quarterly - WINTER 2013 - page 10

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Things are picking up for China
By John Guise
hen would the autumn
pick-up occur or would it
happen at all? That is the ques-
tion that observers of Asian
commodities markets were
asking at the end of September.
Usually activity slows down
over the summer in the region due to hot weather
and monsoon rains in some areas that prevent
transport of commodities. That makes the autumn
period a significant time for traders to do business.
Observers were not expecting to see increased
demand, particularly in China because of signifi-
cant steel re-stocking over the summer. Those
fears were dashed at the start of November.
China’s official Purchasing Managers’ Index, which
focuses on the country’s giant state-owned firms,
hit 51.4 in October up 0.3 points and the HSBC
Manufacturing PMI, which focuses on small and
medium-sized businesses, reached 50.9 for the
same month, a seventh-month high.
Both indicated positive growth in the country’s
manufacturing sector and that growth might pick
up in the last quarter of 2013. Particular growth
may be seen in urban infrastructure projects such
as subways and railways. Reports fromCredit
Suisse estimate that fourth quarter funding for
railways could reach RMB 800-900 billion (US$131-
147.6 billion), a major increase from RMB 350 bil-
lion (US$57.4 billion) spent on railways in the first
nine months of this year. That’s good news for the
copper and steel sectors, whose materials are used
in manufacturing of railway lines and their raw ma-
terials such as iron ore and coking coal.
By the start of November, iron prices were reach-
ing two-month highs with spot prices for ore with
62% iron content touching US$136.80/tonne on
November 5th according data provider The Steel
Index. The prospect of new railways is good news for
steel makers as it looks like a new round of efforts to
tighten housing prices could cause demand for the
material from the construction sector to drop.
Economists are still predicting that China’s GDP
for 2013 will still likely reach 7.5-8%. However, the
railway investment will likely help undercut some
of the downside risk. The railway projects are also
unlikely to go against Chinese President Xi Jin-
ping’s goal of restructuring the country’s economy
from one focused on exports towards one focused
on domestic spending. How quickly this shift is
going to happen is up in the air. The Third Plenum
of the 18th Party Congress of the Communist Party
Congress did mention allowing the market to have
a bigger role in China’s economy but was short on
details. However, this is still seen by observers as a
radical reform.
Steel isn’t the only area in China seeing an uptick.
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