Via Metal Miner
It’s clear that China’s economy is not yet back on track, as various data for May released on Monday show. According to data from the National Bureau of Statistics (NBS), China’s industrial production grew 5.6% in May 2024 compared to May 2023. However, overall production was down from a 6.7% increase in April this year.
Despite this year-on-year increase, industrial production in May fell short of analysts’ expectations of an increase of around 6%, partly due to a slowdown in the real estate sector despite government-led fiscal support measures. Meanwhile, retail sales, another indicator of economic growth, rose 3.7% year-on-year in May, up from a 2.3% increase in April. Meanwhile, manufacturing investment also grew 9.6% in the first five months of the year.
Iron ore prices fell more than 2% and copper extended its recent decline after economic data for May was released on Monday, highlighting continued weakness in the metals-intensive real estate sector in particular, according to Bloomberg.
Impact on metal prices
Copper prices on the London Metal Exchange (LME) fell 1.1% to $9,631 per tonne last week. The red metal recently hit an all-time high of just above $11,000 but fell on concerns over rising global inventories and the shaky performance of the Chinese economy.
Meanwhile, aluminum prices fell 1.2 percent to a two-month low below $2,500 a tonne. The drop came after China’s aluminum production hit a record high last month as smelters restarted operations, driven mainly by boosted hydropower reserves in Yunnan province, where heavy rains helped ease power supply problems caused by the recent drought.
Despite better-than-expected retail sales, most of the data on Monday painted a broadly pessimistic picture, further highlighting the fragile recovery trajectory of the world’s second-largest economy, according to Reuters. Fixed asset investment grew 4.2 percent year-on-year in the first five months of 2024, while investment in industrial production showed a robust 9.6 percent increase. Meanwhile, China continues to emphasize “quality improvement” through technological advances and innovation.
Chinese private investment stagnates
However, private sector investment remains sluggish, growing just 0.1% year-on-year in the January-May period. This is a sharp decline from 0.3% in the first four months of the year, signaling weak private business confidence. In contrast, public sector investment in the same period grew 7.1% year-on-year.
Analysts said the support the Chinese economy received from exports and a notable increase in steel production in May was a relief. But persistent weakness in the property market continues to affect household consumption and investment. The May report revealed that three obstacles to China’s growth story are a sluggish property market, high local government debt, and deflationary pressures.
Real Estate Market Performance and Industrial Production
China’s new home prices fell about 4% year-on-year in May, a steeper decline than the 3% drop in the previous month, the sharpest monthly decline in a decade, the report said. In fact, real estate investment in the first five months of 2024 fell 10% year-on-year.
In the wake of the housing market downturn, Chinese authorities announced a series of measures last month to stimulate demand and reduce supply, including removing minimum mortgage interest rates and allowing local governments to buy up unsold properties. Economists at Goldman Sachs said real estate activity remained sluggish in May despite the recent easing of housing credit.
Meanwhile, China’s steel production in May reached 92.86 million tons, up 8.1% from the previous month and 2.7% from May 2023. However, steel production from January to May 2024 was down 1.4% year-on-year. May’s production was the highest monthly figure since March 2023, beating analysts’ expectations of 87 to 90 million tons. Indeed, daily steel production in May reached nearly 3 million tons, up from 2.86 million tons in April 2023 and 2.91 million tons in May.
Sohrab Darabsho
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