China’s commodity demand seen by Goldman rising rest of year

By Glenys Sim,

Commodity demand in China, the world’s largest user of iron ore, copper and tin, will rebound through the end of the year as infrastructure projects gather pace and users restock, according to Goldman Sachs Group Inc.

The key demand driver is infrastructure and fixed-asset investment, analyst Julian Zhu told reporters at a briefing in Singapore today. Steel prices in the world’s largest producer were seen higher through the end of December, Zhu said.

Goldman’s assessment adds to signs that a slowdown in the second-largest economy may be ending, lifting the outlook for commodities from iron ore to base metals. While Premier Li Keqiang said yesterday that the foundations of a recovery aren’t solid, policy makers have signaled that they will defend a 7.5% expansion goal for 2013. Bank of America Merrill Lynch today raised its growth forecast for China.

“From now till the end of this year, we anticipate China demand for commodities to continue to recover,” Zhu said. “The current commodities inventory in China is still quite low and with the further demand rebound, we should see the ongoing restocking to continue as well.”

Commodities as tracked by the Standard & Poor’s GSCI Index of 24 raw materials are little changed this year, after advancing in July and August. Iron ore with 62% content delivered to the Chinese port of Tianjin rose 0.1% to $135.20 a ton today, up from this year’s low of $110.40 in May, according to figures from The Steel Index Ltd.

Higher Forecast

Data this month showed industrial production beat estimates and manufacturing resumed growth, signaling that the economy is strengthening after a two-quarter slowdown. Bank of America Merrill Lynch said China will grow 7.7% in 2013, up from 7.6% previously forecast, according to a report.

“People are getting more positive, but they’re not super bullish, not yet,” said Zhu “You’re going to see further upside. If you look at the early indicators in September, it seems like the overall economic activity is picking up.”

China’s GDP growth slowed to 7.5% in the second quarter from a year earlier, extending the longest streak of sub-8% expansion in at least two decades. Li signaled in July he won’t tolerate a slowdown beyond 7%.

The government used measures from extra spending on railways to tax cuts to respond to the slowdown. The State Council is targeting 690 billion yuan ($113 billion) of fixed- asset investment in the railway industry this year, the Beijing News reported in July.

Steel reinforcement-bar futures ended at 3,713 yuan a metric ton on the Shanghai Futures Exchange today, after advancing in August for a third month, the best run of gains since January 2011.

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