Not all reports paint such a dire picture of Chinese, therefore global, slowdown, as we wrote in Part One.
Yes, exports are down and yes, GDP growth has been falling, but providing it does not fall too far, there are counterbalancing factors that suggest metals demand will pick up again next year.
Imports are rising faster than exports as the economy re-balances away from an export model that was untenable in the long run towards a greater reliance on domestic consumption. Last year, domestic consumption accounted for more than half of China’s 9.2 percent GDP growth, according to the National Bureau of Statistics quoted in this article, while exports had a negative impact.
Apparently, consumer confidence in China’s biggest cities is now at its highest level in nearly three years, after several years of double-digit wage growth. Meanwhile, the number of Chinese who can afford to travel overseas on holiday has doubled in the last five years, with nearly 39 million making trips in the first six months, illustrating the level of disposable income.
Most of these drivers are positive for commodity demand and growth. The stimulus measures will have some impact, although likely not the level producers are hoping for (like in 2009). A rebalancing of the economy will help boost domestic production and hence demand for metals, even though exports may remain relatively weak.
Even BHP’s decision to scale back investment plans should be seen in the light of the environment in which it exists – a fickle short-termist stock market more concerned about the flow of dividends than long-term strategy. BHP is responding to a need to balance income from reduced commodity prices against outgoings on investments more than a loss of faith in Asia’s demand for materials.
What it may tell us is that demand is not expected — by anyone — to be strong for the next 18 months. For metals buyers, that may be good news. The last thing hard-pressed metals consumers need now is a stimulus-fueled price rally.
Fortunately, it looks highly unlikely, no matter how excited investors may get, in the short term.