What’s killing metal prices in China?

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From Macquarie comes a nice summary:

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The dominant influence for market sentiment, China’s property sector, continued to have weak investment data in October. Property FAI declined 2.4% YoY, which was the third-consecutive month of negative growth since August, indicating no improvement in investment interest from developers. New-start data retreated sharply from September’s recovery, down 24.5% YoY in October. The monthly new-start data can be very volatile, as we see from the history, but the big correction shows this leading indicator for property construction remains fragile. Sales growth slowed to only +5.5% YoY in October, the lowest growth rate since April, when the new property policy was introduced, a sign that deferred demand from previous years may now have been satiated. The only unalloyed positive data in this sector is completed floor area, which increased 38.6% YoY in October and has seen strong growth now for two months. Of course, this can be viewed as adding supply to the property market

 There were some mixed numbers from the infrastructure sector. October China infrastructure FAI increased 12.9% YoY, which was the lowest growth rate this year. By sector we see railway transport investment remained lower YoY, while highway transport improved 15% YoY. A big jump was also seen in the power grid sector, with investment growing 49.2% YoY last month. However, cable production data shows the investment growth not yet boosted domestic cable industry (very important to copper), as cable output was down 7.8% YoY in terms of metres in October, which was the fifth-consecutive month of YoY contraction.

 Mirroring the weakness in the construction sector as a whole, excavator production dropped 29.7% YoY in October, a big acceleration from September’s decline of 15% YoY, and concrete machine production fell 13.5% YoY in the same month, down from September’s -9.7% YoY growth rate. Output of these two capital goods products started to weaken more than two years ago and have not yet seen any improvement this year. Cement and clinker production also stayed in contraction last month, marking a year in negative growth territory. The other sector that showed no improvement was the home appliance sector, which generally softened last month as a result of high inventories. China air conditioner production dropped 8.5% YoY in October, which was the biggest YoY decline in the past two years (bad for copper tube demand).

 The industry that showed some improvement was the auto sector. Production increased 7% YoY in October, which was the strongest monthly growth this year and ended three months of contraction. Meanwhile, sales grew more than 11% YoY in the same month. The growth in auto sales was mainly contributed to by passenger cars, for which sales were up 13% in October. Of course the government’s purchase tax reduction for small engine cars is believed to be the driver for this improvement.

The answer to the question “what is killing metals demand in China?” is therefore EVERYTHING!

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.