China’s Commodities Demand Remains Resilient Despite Factory Slump

(Bloomberg) -- Recent economic surveys are underplaying the resilience of China's commodities consumption, according to Capital Economics Ltd., which pointed to robust imports and its own assessments of economic activity.

The latest factory gauges suggest the outlook for the nation's manufacturers remains fragile, with the official purchasing managers' index released at the weekend shrinking in December to the lowest level in six months. ANZ Group Holdings Ltd. said the survey showed businesses cutting selling prices as orders drop, heightening deflationary risks and the need for more government stimulus, according to a note from the bank.

But lower prices at the factory gate have yet to sap China's appetite for commodities imports, which have stayed buoyant in recent months in part due to expectations that Beijing's steps to support the economy will lift consumption. Those bets on raw materials like copper and iron ore may now be paying off. 

A rise in the construction PMI for December to a six-month high reflects increased state infrastructure spending, Capital Economics said in a report, adding there's “probably also some optimism that the downturn in the property sector has largely run its course and that further policy loosening is on its way.”

The London-based research firm said it expects “a modest cyclical revival in China's growth in the first half of 2024, which should be a factor supporting most commodity prices.”

The Week's Diary

(All times Beijing unless noted.)

Wednesday, Jan. 3:

• CCTD's weekly online briefing on Chinese coal, 15:00

Thursday, Jan. 4:

• Caixin's China services & composite PMIs for December, 09:45

Friday, Jan. 5:

• China weekly iron ore port stockpiles
• Shanghai exchange weekly commodities inventory, ~15:30

Saturday, Jan. 6:

• Nothing major scheduled

Sunday, Jan. 7:

• China's foreign reserves for December, including gold

On the Wire

The People's Bank of China injected nearly $50 billion worth of low-cost funds into policy-oriented banks last month, suggesting the central bank may be ramping up financing for housing and infrastructure projects to support the economy. 

China has front-loaded its oil import quotas for 2024, with an allocation to private refiners and traders that nearly matches all of the allowances granted for the whole of last year.

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