Low prices weigh hard on eco­nomic sta­tis­tics

China Daily (Canada) - - BUSINESS - By SHI JING in Shang­hai shi­jing@chi­nadaily.com.cn

The out­look for China’s econ­omy for 2014 has yet to turn op­ti­mistic, as prices for large com­modi­ties stay slug­gish.

Dragged down by ex­port fig­ures from Fe­bru­ary, Chi­nese im­ported iron ore pricesshowedthe big­gest dai­lyslumpin four years on Mon­day. Prices for iron ore shipped to Tian­jin fell 8.3 per­cent to $104.70 per met­ric ton.

The coal mar­ket also is stag­nant. The bench­mark Bo­hai-rim Steam Coal Price In­dex dropped 10 yuan per met­ric ton on Wed­nes­day com­pared with the pre­vi­ous reporting pe­riod, sig­nal­ing a ninth con­sec­u­tive week of de­cline — down 14.74 per­cent from Dec 25 of last year.

The pro­ducer price in­dex de­fla­tion rate fell to a 15-month low of 2 per­cent in Fe­bru­ary­down1.6 per­cent­fromJan­uary. As a re­sult, broad-based weak­ness has been seen in min­ing and raw ma­te­ri­als price move­ments.

“Un­der min­ing, the over­ca­pac­ity in­sec­tors such as steel and coal saw prices de­cline fur­ther. Mean­while, fall­ing global com­mod­ity prices have also con­trib­uted to the weak­ness in prices,” said Jian Chang, chiefChina econ­o­mist at Bar­clays.

The de­mand for cop­per re­mains weak in China, with fu­tures traded in Shang­hai drop­ping 0.49 per­cent on Thurs­day amid slower in­dus­trial growth data re­leased on Thurs­day.

As China, the world’s largest user of cop­per, re­duces its­de­mand, theS&PGSCI in­dex of raw­ma­te­ri­als fell 1.9 per­cent this week. It is set for its steep­est slump since the start of the year. Cop­per reached a 44-month low at the Lon­don Metal Ex­change as a re­sult.

Yang Mai­jun, di­rec­tor of the Shang­hai Fu­tures Ex­change, said cop­per’s price drop was the com­bined re­sult of bleak macroe­co­nomic num­bers in Fe­bru­ary.

China’s likely first on­shore cor­po­rate bond de­fault, which hit the mar­ket re­cently, also has drained people’s con­fi­dence.

Shang­hai Chaori So­lar En­ergy Sci­ence & Tech­nol­ogy Co an­nounced onMarch 4 that it would not be able tomake an in­ter­est pay­ment of 89.8 mil­lion yuan, due this Fri­day, on a five-year 1 bil­lion yuan bond is­sued two years ago. It had man­aged to se­cure only 4 mil­lion yuan so far for the pay­ment.

With in­creas­ing recog­ni­tion among pol­i­cy­mak­ers that China needs a de­fault, and given its po­ten­tially limited im­pact, a last-minute bailout in this case looks un­likely, ac­cord­ing to Chang of Bar­clays.

“We note that de­fault risks are seen in en­ergy and re­source sec­tors and other in­dus­tries fac­ing over­ca­pac­ity, in­clud­ing ship­build­ing, steel, ce­ment, flat glass, elec­trolytic alu­minum, so­lar, wind power equip­ment, the property sec­tor and lo­cal­go­v­ern­ment­fi­nanc­ingve­hi­cles,” sheadded.

Fitch Rat­ings, a global debt watcher, also ex­pects a re­duc­tion in on­shore lenders’ and in­vestors’ risk ap­petites, which could pres­sure more frail com­pa­nies’ liq­uid­ity, es­pe­cially in sec­tors chal­lenged by cycli­cal down­turns and per­sis­tent ca­pac­ity sur­pluses.

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