Taking stock of Chinese activity in Nov

The latest headline data from China were pretty good.  Inflation remains under control with CPI printing 3%, while exports are starting to pick up, which is largely in line with rising leading indicators for developed countries (as shown in this post)

The details of these data and other releases were generally decent, although there are some weakening trends worth keeping an eye on.

Steel production was a little weaker, with the official data likely to print at ~5%YoY for November. This is not disastrous against a strong Nov 2012 and many steel Chinese steel production forecasts are still likely to be too low.

Iron ore imports were at record levels in November at 77.8mt, and stronger supplies from the seaborne market has aided restocking efforts after the big destock that started at the end of 2012.

While inventories are going up and production levels are a little weaker, we are still at inventory levels that are low.  So even though iron ore supply should continue to rise strongly in the next couple of months, demand should solid and prices high.

The ongoing strength in iron ore demand has supported bulk freight, with the Baltic Dry Index rallying strongly to post new highs.

While iron ore is a big driver of this, a large factor causing the recent bounce has been the increase in interest in thermal coal from China.

Chinese interest in thermal coal should remain decent, with the latest data to Nov 30 on power plant stocks showing a fall in terms of days of use. Inventories at ports remain low at QHD in particular, although there has been some rebuild elsewhere.

Coal consumption actually looks to be a little weaker than expected, growing at ~6% in the latter stages of the month, tracking below my forecasts of ~10%YoY growth.

This hasn't changed the positive impact on prices and with inventories low, its worth remaining positive for now.  But if lower-than-expected coal burn persists for the next couple of weeks, it may be worth switching to a more neutral view on thermal coal.

It does appear that power generation was a little weaker from a YoY standpoint and headline industrial production numbers seem likely to drift down.

While headline industrial production may be a bit slower, it appears that Chinese apparent demand for copper is still pretty good.  Refined and unwrought copper products was up MoM and 19% higher YoY in November in the preliminary data.

It is encouraging that SHFE stocks are also down over November and have continued to fall in December.  Indeed, in the early stages of December, it looks like total exchange stocks of the LME, SHFE and Comex are now lower than a year ago.

While this is a positive development, there is reported off-exchange inventory that may skew this picture.  For example, Vietnamese copper imports have been drastically stronger this year, with the additional ~160kt of imports used for financing purposes.

Chinese regulators are reportedly pushing harder to crack down on this type of access to offshore funding, although this is nothing particularly new.  To be sure, financing demand has proven to be very persistent and an important part of the demand and supply balance.

But at the end of the day, all this is additional demand is only servicing to keep the copper price in its recent trading range rather than pushing it higher.  With more and more supply coming on stream, Chinese demand will have to take another step up again to push prices higher, which seems unlikely.