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Chinese Data Seen As Mixed To Constructive For Metals Markets

By Allen Sykora Kitco News
Wednesday July 16, 2014 10:15 AM

(Kitco News) - Analysts described a slew of Chinese economic data released overnight as mixed to supportive for metals generally, even though the reports have not immediately moved prices.

Chinese authorities tend to release many of the most widely followed economic reports in a single day, which happened to be Wednesday. The list included second-quarter gross domestic product, which rose 7.5%, slightly topping the consensus forecast of 7.4%.

June industrial production rose 9.2% year-on-year versus expectations of 9%. Retail sales rose 12.4% from a year earlier, just below a 12.5% forecast. Fixed-asset investment rose 17.3%, slightly topping the 17.2% forecast.

China is a key commodity-consuming nation as the country develops its infrastructure and the population becomes more affluent. The country consumes in the neighborhood of a third of the world’s copper and last year became the No. 1 gold consumer.

“The GDP print of 7.5% year-over-year was slightly above market expectations and right at the growth target for Chinese officials,” said Mike Dragosits, senior commodity strategist with TD Securities. “The industrial production and retail sales numbers were generally pretty good overall. That signals to us that things are stabilizing over there. Worries earlier in the year about a Chinese hard landing have kind of subsided at this point.

“For the metals in general, at this point that means it’s sort of steady as she goes.”

Presumably, that means demand for industrially oriented metals from copper to platinum to palladium should hold up. Base metals like copper are used for construction and developing the power grid. China is the world’s largest consumer of jewelry using platinum group metals and is the largest car market, which is oriented toward gasoline-powered engines that use palladium for catalysts.

“We may see some follow-through in the PGMs, particularly in the palladium market, where auto sales have been decent,” Dragosits added.

However, analysts pointed out, the data also reduce the prospects for wide-ranging Chinese monetary accommodation that might have given the economy – and thus metals demand – a further jolt.

Jessica Fung, commodities analyst with BMO, said the Chinese data is mixed for metals generally.

“On the one hand, the better-than-expected data suggests that China doesn’t really need a big boost in its manufacturing and industrial sectors to reach its economic growth targets for this year, which is negative for the base metals,” she said.

“On the other hand, if China wants to improve on the 7.5% figure … pulling the stimulus lever might be slightly positive for the metals in the second half of the year. That, at this point, is low-hanging fruit for them to further stimulate their economy, if they want.”

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Dragosits and Fung said they see less potential impact of Chinese data on the gold market than other metals.

Fung said the main focus of precious metals at the moment is continuing to monitor when the U.S. Federal Reserve might eventually undertake hikes in interest rates.

“China isn’t impacting the precious metals so much because the general expectation that China’s physical demand for the precious metals will continue to grow is already priced in, in my view,” Fung said.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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