Out of the monthly Chinese data releases, markets have chosen to focus on the big fall in financing, which is bearish although focussing on one month misses the context of the strong growth through May and June. Digging through the data, there were some more encouraging signs and some areas of concern, particularly for coal-fired generation.
While the loan data has shown a big drop in bank loans and weaker funding via trust vehicles, the real estate data actually showed an improvement in funding for the sector. Construction activity also looks to be a little stronger, although sales still remain very weak.
While it will probably pay to remain concerned about Chinese property markets, if anything the data is a little better this month rather than deteriorating at this stage.
Crude steel production was weaker than the CISA data suggested through July, with small mills apparently cutting production in the month.
It now looks like the revisions to 2013 data are fairly consistent from month to month, with ~55-60ktpd of production added to the original 2013 data.
Interestingly, the pig iron data doesn't appear to be have changed as much and has remained negative in July. Perhaps these data have become disjointed, with the crude steel data a seemingly better indicator of activity at face value.
Coal burn was disastrously weak in July as hydro generation surged in the month after a more subdued May & June. Headline power generation has also been pretty weak in the context of 9% industrial production growth.
The weakness in coal burn has sent coal prices in China to disastrous lows, with miners now making more public announcements about cut backs to supply.
While this will take some time to filter through, it is encouraging that even though coal burn is very weak, coal inventories at key power plants have come down on an absolute basis and a little in terms of days of use. While port inventories are still high, it does appear that fundamentals are making the first step in the right direction, even if prices will remain weak for sometime.
