China PMI Hits a 4-Year High, Sustainable Growth?

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China’s Caixin manufacturing purchasing managers’ index rose to 51.9 in December from 50.9 in November and beat market expectations.

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The figure marks the sixth straight month of growth and the strongest upturn in Chinese manufacturing conditions since January 2013.

China Caixin Manufacturing PMI. Source: Tradingeconomics..com.

By now it’s pretty clear that this growth has been the main driver of higher metal prices in 2016. Industrial production in China has been on an upswing for most of the year, mainly because of the surge in infrastructure spending.

China PMI Up

However, there are concerns that the country’s demand growth rates could slow next year. The real estate and automotive sectors are the engine propelling this rapid growth. If the demand growth from these sectors slows, this could have strong repercussions on China’s demand for industrial metals.

Some Chinese cities have tightened their home purchasing rules to prevent their property markets from overheating. This tightening could have an impact on the country’s real estate market, hurting demand for industrial metals. Also, China’s car sales could lose momentum if China doesn’t extend the tax break for small cars in 2017 this year. Car sales experienced double-digit growth over the past six months, a growth rate that will be hard to keep up with even if the tax break is extended.

What This Means For Metal Buyers

Chinese growth numbers continue to point upwards, supporting the rally in industrial metals. There are concerns about the sustainability of China’s growth, which is something to keep in mind. However, until we see real signs of weakness, we wouldn’t doubt China’s ability to spur growth.

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In addition, the key to metal pricing this year could be in the supply side, and not so much in the demand side of the equation.

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