Clyde Russell is a Reuters columnist. The views expressed are his own.
LAUNCESTON, Australia, April 16 (Reuters) – China’s economic growth data contains a short-term positive and longer-term negative for commodity demand in the world’s largest user of raw materials.
The positive is that gross domestic product (GDP) growth of 1.4 percent in the first quarter is soft enough to justify the mini-stimulus spending on infrastructure planned by the authorities.
While many in the market will focus on the year-on-year GDP growth of 7.4 percent being ahead of the market consensus for 7.3 percent, the more important figure is the quarterly outcome. If annualised, this would come in at 5.8 percent, well below the government’s target for 7.5 percent growth.
Even a mini-stimulus that boosts spending on rail and other infrastructure would be positive for demand for major commodities, such as iron ore, copper, crude oil and coal. There are, of course, risks to the short-term outlook in the form of a crackdown on using commodities as collateral for financing deals.
This heightens the risk that the record iron ore stockpiles at Chinese ports will be sold onto the market, lowering prices and demand for imports.
The same holds true for other resources, such as copper, and more recently soybeans and gold have been added to the list of commodities where demand has been artificially stoked by credit financing deals.
There may be some relief in store in coming months as the soft GDP numbers may spur the authorities to relax lending rules, but even so, they will be reluctant to allow the use of easy money to add to overcapacity, particularly in the steel-intensive building construction industry.
The longer-term negative for commodity demand is that the economic numbers show that China is having some success in re-aligning its economy toward consumption and away from export-led manufacturing.
While March industrial output rose to 8.8 percent from a year earlier, up from 8.6 percent in the first two months, it was below the consensus forecast for 9 percent growth.
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