Wednesday, 18 June 2014

High-frequency China: Remaining stable in early June

Steel production was surprisingly strong in early June, with CISA mill output jumping, although this partially led to an untimely inventory build.  Coal burn remains weak, with it coming towards crunch time for the threat from hydro generation.

From a macroeconomic standpoint, these data suggest stability rather than having reached a tipping point.

Steel production is probably getting a boost from the pick up in infrastructure spending outside housing, with CISA mill output rising to a record for the year.

I would still tend to think production growth will fade given weakness in housing markets, if to do nothing else than to clear inventory. This still remains high at CISA mills, but not disastrously so.

Overall, the steel sector seems to be doing ok despite the level of alarm surrounding slower growth.

Coal burn remains weak and is a little lower than 2013 levels at this point last year.  It is amazing how weak this is compared to 2011 over the same sample.

In 2013 we saw a huge rise coal burn as hydro generation disappointed.  This year it looks like hydro generation is rising, although not back to previous peaks.  So perhaps 2014 will be somewhere between 2012 and 2013 levels.

This is not great news for thermal coal given stock levels currently looks fairly high, although are below the blow out levels seen in 2012. Chinese domestic supply from Northern ports has also tended to be strong despite low prices.

This should keep Chinese and seaborne prices on the back foot.