Barclays Capital held their 4th annual China Commodities Seminar in Suzhou last week of April, 2011. The seminar was attended by around 50 representatives from major producers, consumers and trading houses, primarily in the energy and metals sectors. During the event, BarCap surveyed participants on their outlook for a number of areas. The key findings are below.
• Most are relatively positive on China, with 86% expecting 2011 GDP growth to come in above 8% and 32% expecting growth of over 9%.
• While monetary tightening has been ongoing for some time, the current macro environment is not generally seen as restrictive.
• A majority cited price volatility and rising costs as their key challenges, with only a few concerned about weak demand and difficulties in getting finance.
• Energy and agriculture are the two markets expected to benefit most from China’s 12th five-year plan, industrial metals less so.
• The world often sees China as the predominant driver of commodity prices, but our Chinese audience viewed the US as having the bigger influence. Dollar weakness was cited as the biggest upside risk for commodities in 2011 while a premature removal of Fed stimulus was seen as the biggest downside risk.
• Crude oil and gold are by far the favourite picks for the top commodity performers in 2011. Iron ore is seen as the likely worst performer, while sentiment towards base metals is relatively weak.
China: Still Favourable Environment
“Our survey shows that despite concerns about credit tightening and a potential hard landing for China, many people remain relatively positive on China’s outlook for this year. Indeed, 86% of the seminar participants are expecting 2011 GDP growth to come in above 8% while 32% are expecting growth of over 9%,” according to BarCap.
“When asked about current monetary and liquidity conditions, the results suggest that the current macro environment is not generally seen as restrictive. 72% of the participants thought that monetary conditions are tighter than last year, but that further tightening was needed. Only 15% said monetary conditions are extremely tight and having a noticeable impact on their businesses, while 13% still consider monetary conditions as ‘loose’.”
“Price volatility and rising costs were cited as the biggest challenges that Chinese companies face. Interestingly, only a small proportion cited weak order books (9%) and difficulties in obtaining financing (9%) as their biggest challenges. This is in stark contrast to the results of a similar survey we conducted in late 2008 when over 70% cited weak order levels as the key challenge for their businesses (see Survey Snapshot – results from the CDB-Barclays Capital Commodities Seminar in China, 8 December 2008).”
“Looking forward, most participants expect energy (43%) and agriculture (39%) to benefit the most from the 12th five-year plan. Just 11% expect the base metals sector to be the biggest beneficiary. Given that a good proportion of our audience is involved in the base metals sector, this result indicates relatively cautious sentiment in the Chinese base metals market.”
“Overall, the results are reassuring about China’s growth and point to an environment of robust demand, still accommodative credit conditions and rising costs.”
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