--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 30 While it's
probably going too far to say the China HSBC Purchasing
Managers' Index can be discounted, there are good reasons to be
cautious about the weak January reading.
The final HSBC PMI dropped to 49.5 from December's 50.5,
falling below the 50-mark that separates expansion from
contraction for the first time in six months.
The soft start to the year in global industrial powerhouse
has raised investor concerns that growth in China, the world's
biggest commodity consumer, may disappoint and struggle to reach
7.5 percent, which is widely expected to be announced as the
Hongbin Qu, chief economist for China at HSBC, said in a
statement that the weakness in the PMI was led by weaker new
export orders and "slower domestic business activities".
But is this really such a surprise?
Export orders are always likely to come off post the
year-end holiday season in the West and domestic business would
already have been tailing off ahead of the Lunar New Year
holidays, which start on Jan. 31.
The week-long new year celebrations in China can distort
economic indicators and commodity import data for the first two
months of the year, given that the holidays can fall either in
January or February.
This year, the start of the holidays was 10 days earlier
than in 2013, which in turn was 18 days later than in 2012.
It's generally far easier to wait until both January and
February data are available before making any calls as to how
the start of the year has unfolded in China.
I suspect that they will show that the ongoing trend towards
moderating growth rates remains intact.
It was never going to be easy for the Chinese to rotate
their economy away from growth being led by fixed-asset
investment to one where consumer demand is the key driver.
Certainly, other Asian nations that have largely achieved
this, such as Japan (before its stagnation of the past two
decades), did so at the cost of considerably slower growth
Much will depend on whether the Chinese authorities can hold
their nerve through the inevitable rough patches, or whether
they will turn on the infrastructure taps at the first sign
gross domestic product growth is falling short of targets.
COMMODITY DEMAND STEADY
Assuming China does manage to post GDP growth in the region
of 7.5 percent, with a greater component of that coming from
consumption, where does that leave commodity demand?
Probably in much the same place it was in 2013, on a
gradually slowing trend in growth rates, but still solid in
volume growth terms given the higher base levels.
Take iron ore for example, where a Reuters poll of analysts
showed a median expectation that iron ore imports would jump 11
percent to 910.5 million tonnes in 2014, but that prices would
sag to about $121.50 a tonne, the weakest for five years and
down from $135 in 2013.
The forecasts show that demand in China is likely to be
robust, but the global supply response will ensure that
available iron ore exceeds demand, thus driving prices lower.
This is a common theme for many commodities in China,
including coal, copper and even crude oil to some extent.
Oil demand growth was the slowest in at least 22 years in
2013, rising just 1.6 percent to 9.78 million barrels per day.
This was probably influenced by the fact that China didn't
add to strategic stockpiles last year, but did so in 2012.
Inventories aren't disclosed by the authorities and thus changes
in their level can impact implied demand numbers.
For 2014, the expectation is that oil demand will rise about
4 percent, or just under 400,00 bpd.
This would be solid growth, but not enough by itself to
drive global oil prices higher, given expectations of rising
supply from Iran, Iraq and shale deposits in the Americas.
The picture that emerges from China is that 2014 is expected
to be a year of slower demand growth for commodities, but one
that is neither weak nor strong enough to play a significant
role in price levels.
Rather, for the first time in many years, it may be that the
world's biggest commodity buyer isn't the top influence in
(Editing by Joseph Radford)