Against the Grain

When analysts look at China the discussion quickly degenerates into a boom or bust argument. Perhaps it is more an evolutionary process; going back to ’07 the Chinese central government tried to slow the economy and this was exacerbated by the banking collapse in the West. This forced them to embark on a major economic recovery policy through a mixture of monetary and fiscal policy that measured something in the region of 30% of the economy. This “lift off” phase seems to have stopped the wobble and put the economy back on an even keel with Q4 GDP at 10.7%. With the ship steadied the policy emphasis has turned to slowing those sectors that are overheated (housing, steel, cement) and husbanding other areas (rural development and exports). We expect growth to level off towards 8% this will slow (not halt) Chinese demand for resources and affect import levels. The next phase is how the investors adjust to this trend, China is being driven by a small focused elite while the investors are a disparate mob motivated by greed and haunted by fear. The ILZSG reported that the global zn market had a 71 kt surplus in Jan with global refined zn at 932 kt (683 kt in Jan ’09) giving a stock to consumption ratio of 7.7 weeks.

Base metals began in Asia with two major news items, in Chile an electrical transformer problem plunged the country in darkness, again miners quick to come out with situation reports. While in China expectations of further economic tightening weighted on the markets with Shanghai equities down 1.2%. The latter seemed to have the edge as prices began the third Wed prompt trading under some pressure. The LME stocks saw only pb post a rise and al dominate the declines. For al the attention turns how much mid month stock appears into the warehouses Wed onwards. Interesting article on cu hidden away in the FT 14/03 by John Dizard “Copper market looking tarnished” (www.ft.com). The pre market saw prices pressured as they tended to lead the US$ strength. No sooner does one reopen and another Chinese pb smelter Zhongyi Alloy Co in Sichuan get closed over health issues. In Canada Vale looks to restart Sudbury ni complex with contractors strike is affecting the 85 ktpa production since Jul and Voisey’s Bay 77 ktpa since Aug. The pre market saw prices pressured as they tended to lead the US$ strength. NB. the official 3 mth cu close was 7301, with a Select low at the time of 7317, the vagaries of 2RC. The DJI came in early at 13:30 take some of the currency pressure off the metals. After that lacking independent thought the metals did the “shuffle” around the two D’s (DJI and US$).

In Asia Jan Singapore retail sales rose 2.3% yoy (Dec -4.9%), the first rise in 16 months. The Chinese Jan / Feb rose 4.86% to US$ 14.02 billion. In Japan Feb consumer confidence improved to 40.0 (39.4). Little in Europe with Euroland Q4 employment declining 2% yoy (-2.2%). At a press conference to end the annual parliamentary meeting the Chinese premier Wen Jiabao damped market speculation about a revaluation of its currency.

US daylight savings started Sun so data came early at 12:30 the US Mch NY Empire manufacturing index 22.86 (24.91) followed at 13:15 by Feb industrial production rose 0.1% (+0.9%) and capacity utilisation 72.7% (72.5%), all pretty much as expected. At 17:00 the Mch NAHB housing market index was a disappointing 15 (17).