Chinese auto production accelerates into 2013

Chinese auto sales finished the year a bit better, rising 7.1%YoY in December.  For the full year, sales rose 4.3%.

This was definitely below expectations of ~7.5-8% seen at the start of 2012 and does follow a year of modest growth in 2011.  This slower rate of growth, however, doesn't appear to be broad-based, with big divergences between different segments.

Passenger vehicle sales are on track for decent growth of 7%+ growth in 2012 vs. 5% in 2011.  This is not a bad performance against macroeconomic weakness and restrictions on ownership in some big cities.  It seems likely that growth will be stronger again in 2013 given the more recent signs of improvement in economic conditions heading into the year.

Commercial vehicles are a different story, falling ~7% in 2012 after a 6.5% decline in 2011.   This leaves the current run rate well below that seen in 2010.

This segment of car sales appears to be where government restrictions on credit availability has done the most damage.  A lack of working capital and big declines in housing construction has seen sales of things like excavators crash, while small businesses have also suffered.

There are few signs at the end of 2012 that conditions have improved substantially in this segment, although it should cease to be a drag on auto sales.  This maybe one of the key indicators to watch to see if looser monetary conditions are getting traction in 2013.

Autos are an important consumer of commodities like steel and PGMs and from this prospective production is more important than sales. The difference between the 2 largely depends on whether inventories are too high or too low, which was certainly the case in 2010.

There is no obvious case for a large inventory influence on production in 2013, with inventories appearing broadly neutral to production over the balance of 2012.

The Chinese Association of Automobile Manufacturers (CAAM) are looking for 7% growth in auto sales in 2013.  If anything, I would take the over on this forecast, with double digit rates not a stretch.

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