Slower industrial production growth in China is expected given the somewhat weaker PMI data. But it seems likely that the data release for December will surprise to the downside given the readings through the month on coal burn and steel production were much slower than the PMI data suggest.
Coal burn growth slowed to just 1% in the final 10 days of December, with coal prices already starting to fall. This leaves coal burn for the month as a whole at ~3%, suggesting that power generation growth was also modest in the month.
Power generation growth has generally been weaker than industrial production over the last couple of years, but when power generation has slowed, so to has IP.
Steel production also fell quite a bit in the last 10 days of the year, although this is likely to be at least partially seasonal. At a headline level, YoY growth of 4.9% through December still looks decent enough to suggest the steel economy is ticking over, especially given the strength of activity in preceding months.
That said, the comps maybe somewhat distorted by the underestimation of small mill production in December 2012. CISA mill production, which is an accurate piece of data, grew closer to 1% and perhaps this is the reality of total production if small-mill production in Dec 2012 is stronger than reported.
Another interesting signal from metals markets has been the drop in premiums for physical copper delivered into China. For now, it seems that the impulse to draw copper into China is waning.
This hasn't been a particular problem for prices so far, as ex-China stocks have been whittled away to fairly low levels in the last 4 months. But with refined supply likely to pick up as smelters increase output on higher TC/RCs, it maybe tricky for copper to post further significant gains if Chinese industrial activity is slowing.
