GDP figures may be holding up well, but metal consumption in China suggests the global slowdown and the ongoing trade war with the U.S. are taking their toll on China’s manufacturing sector.
Reuters reported top state primary aluminum producer Chalco is quoted as filing an 8% fall in output, with primary aluminum output of 1.89 million tonnes in the first half of the year, down from 2.06 million tons compared with the first half of 2018.
Overall, revenue actually rose 15% to 94.9 billion yuan, despite a 10% drop in the primary aluminum segment, helped by rising alumina output. Alumina output increased 3.2% year-on-year to 6.82 million tons, fueling a trading revenue increase of 23%.
But higher primary metal costs and weak prices in the primary sector hit profits. In the second quarter alone, Chalco’s net profit dropped 52.7% from a year earlier, while revenue was up 11.3% year on year.
In a separate Reuters article, the news source reported exports have also been hit, falling 4.3% in August from the previous month despite a weaker yuan. Unexpected production outages at two key smelters meant there was less metal available for overseas shipments following flooding at China Hongqiao's (HK:1378) premises earlier last month and a separate outage in Xinjiang.
Last month, China exported 466,000 tons of unwrought aluminum, including primary metal, alloy and semi-finished products. The total was the lowest since February and was also down 9.9% from August 2018.
Supporting the aluminum picture, imports of unwrought copper — including anode, refined and semi-finished copper — products into China stood at 404,000 tons last month, Reuters reported, down 3.8% from the 420,000 tonnes in July and also down 3.8% year on year. The article went on to state the decline came despite copper prices in China being mostly high enough in August for traders to make a profit by buying on the London Metal Exchange, the global price benchmark, and selling on China’s Shanghai Futures Exchange (encouraging bookings of physical copper imports into China).
The blame for the drop in demand is laid at China’s bruising trade war with the United States, driving a fourth straight month of contraction in factory output in August, according to an official survey.
China is not alone, of course.
U.S. manufacturing output has remained positive, albeit slower than a year earlier. However, early indicators, like the Institute for Supply Management survey, showed a contraction in August — the first since 2016, according to Bloomberg. That suggests at least parts of the manufacturing landscape are facing rising headwinds; we would be complacent to think the consequences of the trade war are falling solely on China.
Western Europe is also slowing fast. German manufacturing is arguably already flirting with recession as a consequence of a slowing Chinese economy.
Just as a rising tide lifts all boats, falling global GDP correspondingly depresses prospects for all.
Article by Stuart Burns