China’s PPI for June re­mains un­changed amid over­sup­ply

The Star Early Edition - - BUSINESS REPORT | INTERNATIONAL - Sue-Lin Wong and Min Zhang

CHINA’S pro­ducer price in­fla­tion (PPI) was un­changed in June and re­mained well off highs seen ear­lier this year, amid lin­ger­ing over­sup­ply is­sues in the steel sec­tor and as signs of eco­nomic weak­ness weighed on the out­look for prices.

The PPI rose 5.5 per­cent in June from a year ear­lier, the Na­tional Bureau of Sta­tis­tics said yes­ter­day. This was in line with an­a­lyst fore­casts and un­changed from the pre­vi­ous month.

Prices of raw ma­te­ri­als are mak­ing a mod­est re­cov­ery, helped by stronger fu­tures prices in China over the past few weeks, af­ter an ear­lier hit taken from a broader cool­ing in eco­nomic ac­tiv­ity since March.

China’s June con­sumer prices rose 1.5 per­cent from a year ear­lier, in line with mar­ket ex­pec­ta­tions and May’s read­ing, the NBS said, with food prices con­tin­u­ing their de­clines al­beit at a slower pace.

There are some con­cerns among an­a­lysts that price pres­sures could weaken through­out the rest of the year as eco­nomic fun­da­men­tals soften.

“The up­shot is that, hav­ing eased in pre­vi­ous months, price pres­sures ap­pear to have sta­bilised in June,” Ju­lian Evans-Pritchard from Cap­i­tal Eco­nom­ics in Sin­ga­pore wrote.

“Nonethe­less, with slow­ing credit growth likely to weigh on eco­nomic ac­tiv­ity in com­ing quar­ters we think that, volatil­ity in food prices aside, in­fla­tion still has fur­ther to fall. This will dis­ap­point those hop­ing for a sus­tained pe­riod of re­fla­tion that could help to erode cor­po­rate debt bur­dens.”

Food prices, the big­gest com­po­nent of the con­sumer price in­dex, fell at a slower 1.2 per­cent from the pre­vi­ous year, af­ter slid­ing 1.6 per­cent in May and 3.5 per­cent in April.

“Fall­ing food prices can be at­trib­uted to a high build-up of food re­serves and sea­sonal fac­tors,” Zhu Bao­liang, chief econ­o­mist at the State In­for­ma­tion Cen­ter, said.

Tepid in­fla­tion comes de­spite signs of a pick-up in fac­tory ac­tiv­ity. China’s man­u­fac­tur­ing sec­tor ex­panded at the quick­est pace in three months in June, buoyed by strong pro­duc­tion and new or­ders. Mean­while, spot iron ore and con­struc­tion steel prices have risen as in­vestors con­tin­ued to fo­cus on China’s ca­pac­ity cut­backs and in­dus­trial up­grade in the steel sec­tor.

“High mar­gins af­ter the gov­ern­ment’s ef­fort to elim­i­nate low-grade steel are en­tic­ing mills to pro­duce more steel, which in­creases the need for iron ore,” said Zou Ming­dong, Shang­hai-based steel man­ager

China is ca­pa­ble of achiev­ing its ful­lyear growth tar­get and con­trol­ling sys­temic risks.

at Zhong­cai Mer­chants In­vest­ment Group.

China’s big­gest steel maker, Baoshan Iron & Steel, cut its main steel prod­ucts prices for May and June af­ter a long se­ries of in­creases.

On a month-on-month ba­sis, the PPI fell 0.2 per­cent in June. China is tar­get­ing eco­nomic growth of around 6.5 per­cent this year and in­fla­tion of 3 per­cent. Chi­nese Premier Li Ke­qiang said in a speech at the World Eco­nomic Fo­rum that China is ca­pa­ble of achiev­ing its full-year growth tar­get and con­trol­ling sys­temic risks de­spite chal­lenges.

Mean­while, China’s main stock in­dexes were lit­tle changed yes­ter­day, as in­vestors awaited fresh cat­a­lysts ahead of a burst of data due over the next week. The blue-chip CSI300 in­dex fell 0.1 per­cent, to 3 653.69 points, while the Shang­hai Com­pos­ite In­dex slipped 0.2 per­cent to 3 212.63 points.

Small-caps far un­der­per­formed, with the start-up board ChiNext slid­ing 1.8 per­cent, af­ter the se­cu­ri­ties reg­u­la­tor ap­proved more ini­tial pub­lic of­fer­ings over the weekend. Eight newly-listed stocks tum­bled the max­i­mum al­lowed 10 per­cent.

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