China Manufacturing hits 2 year high

  China’s manufacturing is expanding at the fastest rate in two years, according to a private survey of companies, bolstering prospects that economic growth will accelerate for a second straight quarter.
China’s manufacturing crept higher this month to the fastest pace in two years, a survey showed Thursday, in another sign the world’s second-biggest economy is coming out of a downturn.A preliminary version of HSBC’s monthly purchasing managers’ index rose for the fifth month in a row to 51.9 in January from 51.5 in December. Readings above 50 on the 100-point scale indicate an expansion.

 China’s economy is rebounding from its deepest slump since the 2008 global financial crisis but many analysts predict the recovery will be anemic and wonder whether it will be sustained.HSBC’s chief China economist, Qu Hongbin, said that gains in new business allowed manufacturers to step up production by adding jobs and making more purchases.“Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China’s ongoing recovery in the coming months,” Qu said.HSBC’s index is based on responses from 85 to 90 percent of purchasing executives surveyed at 420 manufacturers. The full version is due by Feb. 1.While domestic demand is holding up, demand for shipments of goods like clothes, toys and electronics is more uncertain because of a weak U.S. recovery and austerity measures in Europe. Export-driven manufacturing employs millions of Chinese workers, though the country’s reliance on trade has lessened as domestic consumption has grown.The Chinese economy expanded 7.9 percent in the final quarter of last year, up from 7.4 percent in the previous quarter, according to data released earlier this month. For all of 2012, the economy expanded 7.8 percent, the slowest annual performance since the 1990s.Economists were watching the index closely for any signs of how China would perform in the near future.Many predict that the rebound will peak in the coming months before easing off to produce growth of about 8 percent for the year, well below double-digit rates of the past decade.Yao Wei, an economist at Societe Generale, noted that the survey’s sub-indexes showed production continued to grow but at a slower rate while new orders edged lower. Similar slowing in previous cycles often came three to four months before the peak

“Hence, the next few reports will be crucial for the assessment of how much stronger growth can get,” she wrote in a research note.

Gains in China’s industrial output and retail sales picked up pace in December, a statistics bureau report showed Jan. 18. Industry and construction accounted for about 45 percent of GDP last year, compared with 45 percent for services and 10 percent for agriculture, according to statistics agency data.

China’s industry ministry is forecasting a 10 percent rise in factory output this year, unchanged from 2012’s pace.
Alcoa Inc., the largest U.S. aluminum producer, said Jan. 8 that it sees global demand growth for the commodity recovering to 7 percent in 2013 as China’s economic rebound drives demand for cans, transport and office buildings.

 The government has paused from easing monetary policy since July after two interest-rate cuts and three reductions in banks’ reserve-requirement ratio. At the same time, authorities have accelerated investment-project approvals, increased infrastructure spending and cut taxes for small businesses to boost domestic demand and support growth.

Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said he expects no cuts in interest rates or the reserve ratio this year as growth recovers and inflation accelerates. The HSBC index “reinforces our view that GDP growth will pick up further” in the first quarter to 8.2 percent, Zhang said in a note today.

Economeka Capital

Well given the data there are many ways this news can be interpreted. But the logical conclusion is the beginning of this year could be good for commodities. We have already seen gold reaching levels it hasn’t been at in a while.

These better manufacturing numbers can be attributed to the impeccable intervention by the central bank mid to late last year. The two interest rate cuts and the three reductions in banks reserve ratio requirement helped stimulate infrastructure finance sentiment leading to the record 2 year manufacturing number we are seeing today. This coupled with the acceleration of investment project approvals and lower taxes has stimulated manufacturing growth numbers.

What this means for commodity producers round the world and in Africa especially is that there is sufficient reason for optimism going into 2013.The slow but evident recovery in the US housing market indicates signs of improvement, coupled with the Federal reserve’s commitment to its asset purchase program for the better part of this year.US Recovery is just around the corner.

What this means for a Zambian point of view is that mining firms could benefit from an increased demand of copper which could translate into a higher price per tonne. A first Quantum mineral which is listed on the Lusaka stock exchange could see realistic gains in share value (speculation).