CHINA’S NUMBERS RACKET
Questionable statistics take toll
In November 2013, the bosses from nine of China’s largest copper smelters sat down over a weekend to discuss the state of the local market. They did so because they had lost faith in the official copper production figures released by the National Bureau of Statistics (NBS).
The NBS had just reported record output in the month of October, equivalent to an annualised run rate of 6.8 million tonnes.
The smelter operators weren’t convinced, suspecting the statistical agency was double-counting production at parent and subsidiary companies and incorrectly labelling some intermediate products such as copper blister as refined metal.
Actually, it was more than mere suspicion. The smelters were themselves supplying the raw data to the agency in the first place, so they had a good idea of what the resulting production figures should look like. Nor was this a case of statistical nit-picking. The smelters were poised to engage with international miners on terms for the supply of copper concentrates the following year and knew that the “official” production figures would be a core discussion point in the negotiations.
The moral of the story is that it’s not just Western analysts who struggle with the reliability of Chinese statistics. And it’s a timely reminder that inconsistent data can have very real-world effects because right now there is no data at all.
The NBS has suspended the publication of detailed metals production figures since October last year. This means that everyone is now largely in the dark as to what is happening in the world’s largest metals economy.
It’s not just the monthly base metals production figures that have gone missing. Data on oil products such as liquefied petroleum gas, naphtha and fuel oil have been withdrawn as well. So too have regional figures for coal, steel and electricity output.
This has little or nothing to do with the sort of inconsistencies in the NBS data picked up by the country’s copper smelters. Rather, it results from an anti-corruption investigation into the agency by the Central Commission of Discipline Inspection (CCDI).
Wang Baoan, head of the NBS, was removed from his post in late February after being put under formal investigation. Another 313 staff members are being indicted for selling the data for personal gain.
It has long been a curiosity of the NBS that it publishes only a very limited set of data and disseminates more detailed information via a network of middlemen, a system that apparently has led to wholesale abuse.
The immediate outcome of the investigation has been the dismantling of that network, meaning that the NBS has reverted to historic form, only publishing aggregated headline figures.
So, for example, we know only that output of 10 metals, running the gamut from aluminium to zinc through mercury and magnesium, fell by 4.3% in January-February from a year earlier.
Good luck if you’re going to try and work out how much copper was produced from that catch-all statistic.
As with the copper smelter story above, the lack of production data is not just affecting outside calculations of what is happening in China.
Local research houses such as Antaike and Mysteel are not receiving any information either. And, according to analysts at Macquarie Bank, the China Nonferrous Metals Industry Association (CNMIA), the most-used alternative to the NBS, has also stopped publishing detailed production figures with the single exception of aluminium.
WHY IT MATTERS
It’s hard to overstate the impact of this suspension of service on the base metals sector. Although China tends to grab the headlines because of its import demand, the country is also a major producer of just about every metal imaginable.
Moreover, this statistical blackout has happened at a crucial time in terms of what is happening in the sector in China.
Remember that toward the end of last year, when metal prices were in free-fall, Chinese aluminium, copper and zinc producers all announced their intention to reduce output in 2016.
Did they follow through, or was it just a warning shot across the bows of short-sellers running riot across the Shanghai Metals Exchange at the time? Right now, there is no way of telling.
Moreover, Chinese production figures also tell us a lot about the state of domestic metals demand.
Given the near statistical impossibility of actually counting consumption because of the fragmented nature of the supply chain, analysts, both Chinese and Western, guess-timate “apparent consumption”.
This calculation is based on domestic production, plus or minus changes in visible stocks, plus or minus net trade flows.
The foundation of that calculation has just dropped out of sight. Now, all may not be lost in eternal darkness.
There’s no suggestion that state bodies such as CNMIA won’t still provide Chinese production figures to international statistical agencies such as the Lisbon-based Study Groups and the International Aluminium Institute.
The problem is that such bodies tend to publish their own monthly statistical snapshots with a significant time delay. As of last week, for example, the most recent update by the International Lead and Zinc Study Group covered only the first two months of this year.
Futures markets aren’t good at such rearview driving, preferring information that is as up-to-date as possible, which is what the NBS was supplying.
The NBS itself has said that the monthly releases have only been “temporarily suspended” and will return as and when the investigation is concluded.
But, rather ominously for analysts everywhere, that comment came with a warning that the amount of data made public would in future be restricted.
Which casts a new light on the previous statistics with all their imperfections and resulting frustrations. Because even poor visibility is still preferable to pitch darkness.
It has long been a curiosity of the NBS that it publishes only a very limited set of data and disseminates more detailed information via a network of middlemen, a system that apparently has led to wholesale abuse