SHANGHAI: China’s crude oil runs, oil demand and total base metals production unexpectedly fell in April from the preceding month, with slackening power generation also fanning concerns that the world’s second-largest economy is not yet on a stable footing.
Although record-high daily crude steel output was a bright spark in April’s output figures, slowing real estate investments and falling property sales are set to drag on the steel sector in the coming months, analysts said.
Robust imports and swollen inventories of everything ranging from copper, coal, iron ore and soybeans have prompted analysts to warn that the supply of key commodities may outpace demand and squeeze China’s import appetite in the coming months.
Other data released on Tuesday also showed Chinese investment, retail sales and factory output growth all disappointed in April by hitting multi-year lows, suggesting the economy is still losing steam despite government efforts to shore up activity.
“The figures, taken together with recent import activity, shows underlying demand is still weak, which means demand for commodities is going to ease as end-users take time to digest existing stocks,” said Lian Zheng, an analyst at Xinhu Futures in Shanghai.
Zheng said slowing demand for social financing in April also suggests China’s demand for commodities import will fall.
Social financing, a broader measure of credit creation that includes bank loans, bonds and “shadow bank” lending, is a key driver for commodities demand as companies would use imports as a route to get cheaper loans overseas.
China’s daily crude throughput in April fell 2.4 percent from the preceding month to 9.63 million barrels per day (bpd), while implied oil demand hit the lowest in seven months as refineries scaled back production for maintenance and continued to export surplus refined fuel to trim inventories.
The strength in China’s commodities import has largely overshadowed the strength of the broader economy, in part supported by financing demand and state stockpiling.
Reflecting cooling economic activity, China’s power generation fell 6 percent in April from the prior month, even though plants normally crank up production ahead of a seasonal rise in demand.
Power output in the world’s top consumer was 425 billion kilowatt hours (kWh) in April, data from the National Statistical Bureau showed.
Lacklustre demand for power is set to weigh on China’s steam coal imports and prices, with the market already dogged by oversupply and stiffer competition from renewable energy, such as hydropower.
Rising hydropower generation in the second-quarter will also put a lid coal consumption by the power plants.
Total base metals production in April rose 4.3 percent from year ago to 3.4 million tonnes, data showed. However, output was down about 4 percent from March.
China will issue a detailed breakdown of base metals production data later this week.
Average daily crude steel output hit a record 2.29 million tonnes in April, as steel mills lifted production to meet seasonal demand, but analysts said signs of weakness in factory output and the property sector could feed through later in the year and hit iron ore demand.
China’s real estate investment, which affects more than 40 other sectors from cement to iron ore, grew at a slower annual pace in the first four months of 2014 while sales continued to drop from a year ago, official data showed.
Analysts said property investment growth would moderate further in the coming months as developers are slowing their pace of expansion amid slack sales.
“The weak property sector, particularly floor space for new construction, suggests that steel demand will come under strong pressure in the second half,” said Du Hui, an analyst with Qilu Securities in Shanghai.
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