The Westpac–
BREE
China Resources
Quarterly
Southern spring ~
Northern autumn
2013
1
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ISSN 978-1-921516-05-4 (Print)
ISSN 978-1-921516-07-8 (PDF)
Postal address:
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2
Acknowledgements
This publication was jointly undertaken by the Bureau of Resources and Energy
Economics (BREE) and Westpac Institutional Bank, a division of the Westpac Group.
The relationship is non-commercial.
Editors
Westpac: Huw McKay and Justin Smirk.
BREE: Kate Penney and Tom Shael.
Design and production
Julie Doel and Tom Shael
Cover image
Shutterstock
This report was finalised on November 8, 2013.
3
Contents
Acknowledgements........................................................................................................ 3
Contents ......................................................................................................................... 4
Foreword ........................................................................................................................ 5
Acronyms and abbreviations ......................................................................................... 6
Executive summary ........................................................................................................ 8
Recent developments in the Chinese economy ............................................................ 9
The real estate sector .................................................................................................. 10
International trade ....................................................................................................... 10
The monetary & financial sphere ................................................................................ 11
External finance & the currency .................................................................................. 13
Heavy industry ............................................................................................................. 14
The household sector .................................................................................................. 14
Steel ............................................................................................................................. 21
Iron ore......................................................................................................................... 25
Metallurgical coal......................................................................................................... 28
Developments in China’s energy policy ....................................................................... 29
Electricity trends .......................................................................................................... 30
Thermal coal................................................................................................................. 30
Oil ................................................................................................................................. 33
Gas................................................................................................................................ 36
Uranium ....................................................................................................................... 36
Gold .............................................................................................................................. 37
Copper .......................................................................................................................... 39
Aluminium .................................................................................................................... 43
Nickel............................................................................................................................ 46
Zinc ............................................................................................................................... 48
4
Foreword
Welcome to the sophomore edition of the Westpac-BREE China Resources Quarterly
– hereafter the CRQ. The CRQ is a ‘first of its kind’ collaborative research venture
between the Westpac Institutional Bank (hereafter Westpac) and the Bureau of
Resource and Energy Economics (hereafter BREE).
The CRQ is the primary reference point for public and private sector decision makers
seeking to understand developments in the Chinese economy, with special reference
to its demand for resources.
Feedback on the inaugural edition has allowed us to improve the report in a number
of ways, and we thank our stakeholders for their keen interest and constructive
engagement.
This edition has been compiled with the countdown to the all-important 2013 Party
Plenum underway. In recognition of the gravity of this meeting, which will determine
the broad contours of China’s economic and financial reform agenda for the next
decade, we have lengthened the macroeconomic segment of the CRQ to incorporate
a survey of the critical issues that the leadership are contending with. Note that this
report was finalised on the 8th of November, while the Plenum was scheduled to run
from the 9th to the 12th.
This report also post-dates a most lively panel discussion on China’s medium and
long term prospects at ANCRE - the Australian National Conference on Resources
and Energy. The panel featured experts from Westpac, BREE, BHP Billiton, the
Australian National University and the Australian Federal Treasury. The consensus
seemed to be that while China faces a different matrix of challenges now that it is a
middle income country, there was still considerable confidence that it will maintain
an impressive growth trajectory for the remainder of this decade.
Bill Evans
Chief Economist, Westpac
Bruce Wilson
Executive Director, BREE
5
Acronyms and abbreviations
ABS
Australian Bureau of Statistics
AUD, $A
Australian dollar
ASEAN Association of Southeast Asian Nations
bcm
billion cubic metres
BREE Bureau of Resources and Energy Economics
CEIC
Chinese Economic Information Company
CFR
Cost including freight
CNY
Chinese yuan
cm
cubic metres
dltu
dry long tonne unit
FDI
foreign direct investment
FOB
free on board
FX
Foreign exchange
G3
United States, Europe and Japan
GDP
gross domestic product
GFC
global financial crisis
GFCF gross fixed capital formation
GCF
gross capital formation
IEA
International Energy Agency
IMF
International Monetary Fund
koe, mtoe
kilogram of oil equivalent, million tonnes of oil equivalent
kgpp
kilograms per person
kWh
kilowatt hour
LNG
liquefied natural gas
Mt
million tonnes
6
na
not available
NAR
net as received
NIEs
Newly Industrialised Economies (Singapore, Taiwan, Hong Kong, South Korea)
ODI
outward direct investment
OECD Organisation for Economic Cooperation and Development
OPEC Organisation of Petroleum Exporting Countries
PMI
Purchasing Managers Index
PPP
purchasing-power parity
ppt
percentage point
RET
Department of Resources, Energy and Tourism
RMB
Chinese Renminbi
SHIBOR
Shanghai Interbank Offered Rate
sqkm square kilometres
USD, US$
United States dollar
Growth rate conventions and abbreviations.
“Year-ended growth”, abbreviated %yr, is the level of an indicator in a single period
(a month or quarter) versus the corresponding period in the prior year, expressed as
a percentage.
The term “smoothed growth” should be understood to represent a 3 month moving
average (3mma) of the year- ended growth rate.
“Year-to-date growth”, abbreviated %ytd, is the accumulated level of an indicator at
a point in the calendar year (for example year-to-June, year-to-Sep) versus the
corresponding point in the prior year, expressed as a percentage.
“Annual average growth”, abbreviated %ann, is the level of an indicator over four
quarters, versus the previous four quarter period, expressed as a percentage.
“Month-on-month and quarter-on-quarter growth”, abbreviated %mth or %qtr, is
the level of an indicator in one period, versus the immediately prior period,
expressed as a percentage.
“Annualised growth or annualised rate”, is the change in an indicator in a single
period grossed up to a year, expressed as a percentage. If seasonally adjusted, this
may be rendered as %saar.
7
Executive summary
The Chinese economy grew at a rate close to its potential in the first three quarters
of 2013. The general impression left by the flow of data since the previous edition of
CRQ has been one of improvement, with the grind of the first half giving way to a
more respectable performance through the September quarter. The economy is on
considerably firmer ground now than it was eighteen months ago, when domestic
demand and exports simultaneously experienced very weak conditions.
Growth in heavy industrial capacity has slowed markedly over the last year, although
signs of stability have emerged in recent months. Countering that, investment in
hard infrastructure has been on an accelerating trajectory since the September
quarter of 2012. Transport projects have been in the vanguard of this trend,
although growth in railway investment now looks to have peaked.
Real estate investment has improved throughout the year, even though housing
starts have been lagging behind property sales in the year to date. Housing prices
and sales turnover have re-accelerated following a Q2 dip, a development that may
lead to a sterner policy approach in the not too distant future.
Heavy industrial output has just completed a strong quarter, with power generation,
steel, cement and auto production all accelerating from their first half growth rates.
China’s exports to advanced markets began to grow again in Q3, with Europe’s
contractionary influence lessening. China’s imports from commodity producing
countries are rising faster than its overall import bill.
As the world’s largest consumer of most minerals resources, the flatter trajectory of
economic growth in China is starting to flow through to commodities markets.
Although China’s metals use, energy output and raw material imports remain high
(and are still growing in most cases); most commodity prices have continued
retreating from the record high levels of recent years.
Developments in China’s energy policy indicate a new focus on environmental
amenity and finding a better balance between meeting the economy’s growing
energy demand and air quality. The Chinese Government has announced a range of
both supply (clean energy technology deployment) and demand (energy efficiency
and conservation) measures to diversify its energy mix and reduce pollution.
Although the proportion of gas, renewables and nuclear energy in China’s energy
mix are planned to increase, particularly in key industrial areas, the reliance on coal
and oil is still likely to continue for some time to come.
In addition to the usual fare, there is a feature article on pages 14–17 discussing the
range of reforms that could potentially emanate from the November Plenum.
8
Recent developments in the Chinese economy
The Chinese economy grew at a rate close to its potential in the first three quarters
of 2013. The general impression left by the flow of data since the previous edition of
CRQ has been one of improvement, with the grind of the first half giving way to a
more respectable performance through the September quarter. The economy is
considerably firmer now than it was eighteen months ago, when domestic demand
and exports simultaneously experienced very weak conditions.
Real GDP expanded by 7.7% year-to-date (Q1-Q3) and by 7.8% year-on-year in the
September quarter alone. That latter pace compares to 7.5% year-on-year in the
June quarter, 7.8% in calendar 2012 and 9.3% in 2011. Nominal GDP improved visibly,
accelerating to 10.4%yr (versus 8.0%yr in Q2, unrevised despite a change to real
quarterly estimates), with a 2.1ppt lift in the GDP deflator conspiring to push growth
higher. That broke a run of five consecutive quarters where nominal activity failed to
expand at a double digit pace - the first such episode since the deflationary late
1990s.
Looking at the breakdown of real activity from the production side of the accounts,
primary (3.4%ytd from 3.0%ytd in Q2) and secondary industry (7.8%ytd from
7.6%ytd in Q1) both improved from a quarter ago, while tertiary activity (8.4%ytd
from 8.3%ytd in both Q1 & Q2) consolidated the modest gains made over the prior
year.
Contributions to Chinese economic growth in terms of expenditure were 3.5ppts
from final consumption (3.4ppt in Q2); 4.3ppts from investment (4.1ppt in Q2); and
net exports at –0.1ppt versus +0.1ppt in Q2 and +1.1ppt in Q1.
Within investment, on a nominal basis, growth in heavy industrial capacity slowed
markedly in the first half, but it appeared to stabilise in Aug-Sep. Investment in
transport projects, notably railways, have been very much to the fore in the year to
date, although growth in this category of capex now appears to have peaked. Real
estate investment has improved modestly from its mid 2012 lull, with housing starts
gradually improving in lagged response to strong sales (of which more below). Stateowned enterprises contributed 29% of the growth in fixed investment in the first
three quarters of the year, up from 27% in 2012.
Figures 1–3
Please refer to page 2 of The Westpac-BREE China Resources Quarterly PDF version.
Rather than relying on GDP alone to assess the state of the Chinese economy, it is
prudent to complement the national accounts with a range of alternative indicators
that correlate with overall activity. Doing so provides a richer and more complete
picture of macroeconomic trends. For the real economy (as opposed to the
monetary-financial sphere, which will be dealt with subsequently) these data fall into
three broad categories. They are (1) nationwide surveys (2) economy wide measures
of intermediate input, and (3) bellwether industry sectors that map the broader
9
economic cycle. Additionally, balance sheet information from the government and
corporations contain relevant insights on underlying growth.
At present, a balanced reading of the alternative indicators suggests that the official
GDP figures, abstracting from quarterly volatility, are providing a reasonable
approximation of the true underlying state of affairs. Indeed, the ‘proxies’ presently
imply that activity growth is no weaker than the GDP figures indicate, and possibly a
little stronger.
The People’s Bank of China’s corporate survey is the most valuable resource in
category (1). The largest firms in the country gauge that business conditions were
below their long run average in each of the last two quarters, but only marginally so.
In category (2), alongside the traditional proxy of electricity output, logistics volumes
provide additional insight. As of September 2013, the smoothed year-ended growth
rate of these proxies was 11.5% (electricity); 10.1% (terrestrial freight) and 12.3%
(aquatic freight). Raw material import volumes are broadly consistent with these
figures.
In category (3), the real estate industry - especially its construction arm - is the
bellwether of choice. It is considered in detail on the following page.
Regarding balance sheets, the smoothed year-ended growth rate of central
government revenues was 10.8% in Q3. The profits of industrial enterprises
(manufacturing, mining and utilities) increased by 12.8% year-to-date in the first
eight months of 2013, having finished 2012 down more than 9% on the prior year.
Profit margins have been relatively steady around long run average levels in recent
months.
Figures 4–6
Please refer to page 3 of The Westpac-BREE China Resources Quarterly PDF version.
The real estate sector
Real estate represents around one quarter of nominal urban fixed investment. Real
estate investment itself is split roughly 70/30 between residential and nonresidential. State-owned enterprises represent around 16% of the total.
Nominal real estate investment grew 22.3% in year-ended terms in September 2013.
That compares to 19.4% in June and 12.4% at the end of 2012. Dwelling investment
grew at 21.5%, 18.7% and 7.1% at those respective points.
Housing sales began their present expansion in 2012Q2, tentatively at first, before a
decisive upswing emerged in late 2012 that extended into early 2013. This drove
land and dwelling prices higher and rapidly improved the inventory and liquidity
positions of property developers. By March 2013, with turnover buoyant and overall
10
growth risks apparently contained, the authorities felt the need to curtail the
strength of the upswing, thereby limiting the degree of damage done to affordability,
particularly in major cities.
The March controls were initially successful in reducing the growth of sales and the
rate of price appreciation, but after a few months, the market re-accelerated.
Arguably this reflected lax enforcement of central guidelines at the local level, given
there was no announced shift in policy stance. Further, it is possible that this
forbearance was informally tolerated by Beijing as a way of temporarily
underpinning confidence, given the leadership felt compelled to state that they
would defend their 7½% annual growth target when the situation looked finely
balanced around the middle of the year. With such concerns apparently alleviated, it
is likely that Beijing will soon prevail upon the local authorities to reinvigorate their
enforcement efforts.
Regarding construction, new starts have been lagging well behind sales, indicating
that developers have primarily used the sales rebound to clear inventory and bolster
balance sheets, rather than to finance new building. In the previous edition of CRQ,
we indicated that some catch-up in starts was to be expected in the second half of
2013, and the September monthly figures seem to confirm that position.
Figures 7–9
Please refer to page 4 of The Westpac-BREE China Resources Quarterly PDF version.
International trade
Gross value-added attributable to the export sector accounts for approximately 17%
of China’s GDP. So while exports are secondary in importance to the domestic
construction cycle as a source of economic growth (and ultimately resource demand)
they are far from irrelevant. Indeed, given the large amplitude of historical swings in
export growth, at certain times external demand can outweigh the domestic story.
In the previous edition of CRQ, it was reported that disguised capital inflows had
inflated growth in China’s customs export data in early 2013, but by June overall
exports had moved back into line with the global trend, which was poor. The months
of July and August saw considerable improvement however, with a lesser drag from
Europe a notable development. Exports to advanced countries as a whole are now
running at a similar pace to China’s global shipments.
The business surveys have been describing an external environment where demand
is contracting modestly. The “new export orders” sub-index in the two most watched
surveys, which averaged 48.0 in Q2 (where 50 signifies the dividing line between
expansion and decline) improved to an average of 49.3 in Q3, with a 50.7 reading in
the month of September alone.
11
Imports of machinery and transport equipment improved somewhat early in Q3, but
retreated in September, continuing a patchy year. The inability of this sector to
exhibit consistent growth derives from weak processing export volumes, excess
capacity in the onshore machinery sector and underwhelming domestic equipment
investment. The value of food imports, which averaged growth of 31% in the three
years to December 2012, have slowed to a single digit percentage pace in the year to
date. Import volumes of crude oil and iron ore are both above their trend paths.
Overall imports from commodity producing countries are rising faster than the
overall import bill; imports from the G3 are growing just shy of 6%yr; while imports
from the NIEs (a proxy for the component and assembly trade) are materially softer
than the domestically oriented categories.
Figures 10–12
Please refer to page 5 of The Westpac-BREE China Resources Quarterly PDF version.
The monetary & financial sphere
China’s monetary policy has been in constant flux since 2011. Credit supply reached
a very low ebb in 2011Q3, with tight liquidity conditions, ‘shadow banking’ going into
reverse and a catalogue of sectoral lending controls in place. The degree of restraint
on conventional loans was eased soon after, but other forms of finance remained
weak throughout the first half of 2012. However, with targeted counter-cyclical
measures beginning to gain traction from the middle of that year, which in turn led
to a positive response from asset prices, ‘shadow banking’ re-engaged in 2012Q3,
and new credit supply rebounded smartly. That state of affairs persisted through the
end of 2013Q1, when the policy bias again began to tilt back towards restraint,
which led to the dramatic interbank squeeze in late June, as documented in the
previous edition of CRQ.
Since that last report, the supply of credit to the corporate sector has been highly
variable. In the immediate aftermath of the June disruption, financing took a hit in
July, with most forms of non-bank and ‘off balance sheet’ lending by banks either
declining outright or slowing abruptly. August and September were firmer though,
and on the surface, the case could be made that the earlier stresses have completely
receded. The problem with that assessment is that bill finance and foreign currency
loans remain below their June levels as of September, and corporate bonds and trust
lending remain on very modest trajectories, despite an observed uplift from the
May-July soft patch. Furthermore, interbank lending volumes have not returned to
their pre-shock trend, and liaison suggests that many small and medium sized banks
are constrained by having reached their loan to deposit ceilings.
As for the People’s Banks liquidity operations, it has been more accommodative in
terms of scale in Q3 as a whole, but the rate at which it is prepared to engage in 7day reverse repo agreements has increased by 0.5%pa since January, to an average
of 3.9%pa in September. Furthermore, liquidity supply became more grudging as the
12
quarter aged, with the net injection for September substantially lower than in July
and August.
Figures 13–15
Please refer to page 6 of The Westpac-BREE China Resources Quarterly PDF version.
External finance & the currency
The bilateral exchange rate with the US dollar has appreciated by a cumulative 32%
since the peg exit in June 2005. The real effective exchange rate, which measures the
nominal trade weighted move in the CNY while also accounting for relative inflation,
has appreciated by 38%. The real CNY has appreciated by 9.3% over the year to
September 2013, while USD/CNY has fallen by 3.0% (an appreciation of the yuan).
Around 1½ percentage points of that gap is attributable to higher relative inflation in
China over the year. The remainder is due to appreciation against China’s non-US
trading partners, most notably the Japanese yen (due to Abenomics) and the
emerging markets universe (particularly those currencies ‘supported’ by current
account deficits, which found the going very tough through the “QE tapering”
episode).
The observed strengthening of the spot exchange rate is consistent with both the
overall bias to tighten monetary policy and China’s structural balance of payments
surplus. Modest appreciation has been accommodated by the authorities despite a
soft performance by the export sector, as described on page 5. Despite the
appreciation trend, non-deliverable forward markets (NDFs), which represent
market expectations of the future level of USD/CNY, continue to predict yuan
depreciation over a 12 month horizon. These expectations reached a peak of
negativity in late June, when depreciation of almost 3% was anticipated, but
subsequent developments inside China and elsewhere have seen that pricing correct
closer to a 1% decline.
The capital flow backdrop has passed through three distinct phases so far this year. It
is apparent that inflows were very strong from January to April, while large outflows
occurred in May and June. The level of foreign exchange reserves rose by $US223bn
in the first four months of the year and then declined by $US38bn in the following
two. Reserve accumulation then picked up again in Q3, rising by $US163bn (to
$US3660bn) in total, with $US110bn of that coming in September alone. Noting that
the trade surplus narrowed slightly from the previous quarter, as did direct
investment inflows, it follows that there was a material net increase in ‘hot money’
flows during the quarter.
Figures 16–18
Please refer to page 7 of The Westpac-BREE China Resources Quarterly PDF version.
13
Heavy industry
As heavy industrial output (and investment in new capacity) is essentially a measure
of ‘derived demand’ from other sectors, it is a reactive variable in the medium term
forecasting framework. However, when the time horizon is shorter, swings in heavy
industrial activity can be responsible for much of the volatility observed in the
aggregate data. As the major direct consumer of raw materials and a key provider of
intermediate goods for use elsewhere in the supply chain, an understanding of heavy
industry is vital to a full comprehension of China’s resource demand.
Total industrial value-added expanded at a year-ended rate of 10.1% in the
September quarter, which compares to 9.1% three months ago, an even 10% at the
end of 2012 and 9.1% a year ago. The comparison growth rates for a weighted subset of heavy industries, (see the ‘core’ time series in Figure 19), are 11.9%, 8.7%,
8.0% and 4.7% respectively. The rebound in the ‘core’ index from its 2012 lows was
broad based. In the most recent quarter, the improvement has come from the
production of steel, electricity and autos, while cement output growth has been
steady. The growth of non-ferrous metals output has slowed.
Data from the various industry associations points to a very favourable inventory-tosales position for basic materials firms and an improving dynamic in downstream
manufacturing. Official figures on inventories are broadly in line with that
characterisation, with a lean position in intermediate goods particularly notable.
While domestic capital goods prices have been falling for two years, the rate of
deflation has lessened recently, and real equipment investment firmed in Q3 vis-avis the first half. An acceleration in the growth of highway investment since July is
one contributing factor here.
Note that despite a round of factory closures having been ordered in July, a sign that
the central authorities are serious about retiring excess capacity, heavy industrial
capex growth has actually increased of late. Rubber and plastics; ferrous smelting;
chemical fibres; non-metal mineral products; paper making; transport equipment
and general equipment all recorded rising fixed investment growth in September
(albeit from a range of starting points).
Figures 19–21
Please refer to page 8 of The Westpac-BREE China Resources Quarterly PDF version.
The household sector
China’s urban consumers had shown distinct signs of animation in late 2012 and
early 2013, with housing and auto sales moving along nicely, healthy demand for
credit and a tangible shift towards greater optimism in survey responses. Surveyed
levels of confidence reversed course in Q2 though, as sentiment towards current
income moved adversely and confidence in future income fell. The downbeat
assessment of current income spilled into Q3, but expectations of future income
14
lifted, consistent with tentative evidence that the labour market firmed a little in Q3
(of which more below). A more risk averse “best place for savings story” emerged in
Q2 (more deposits, less investment). In Q3, there was a marginal rise in the desire to
invest, but no corresponding decline in the attractiveness of safe assets.
Housing and auto sales are the two most reliable gauges of household activity
available on a monthly basis. The development of the housing sales cycle was
covered on page 4. As for surveyed purchasing intentions, fewer consumers were
planning a housing purchase as of Q3 than were doing so either a quarter or a year
ago. Regarding autos, sales have been running at an average annualised pace of 21.7
million units in the first nine months of this year. That compares to a 19.3 million
unit pace a year ago. In year-ended percentage terms, Q3 sales increased by 13.3%,
up from 11.2%yr a quarter ago. Surveyed car purchase intentions have diminished
sequentially for three straight quarters, but the net level remains comfortably above
the long run average.
Official labour demand-supply ratios imply that the national job market improved a
little in Q3, which is to say that urban labour demand out-stripped the supply by a
greater amount than in the previous quarter. However, conditions remain ‘less tight’
than they were at the outset of the year. Averaging the Q2 and Q3 readings in the
eastern provinces, one gets a reading comparable to the second half of 2012 but
comfortably above the second half of 2011, which feels about right. The job market
has been consistently tight in the central region through the last two years, perhaps
reflecting the well documented inward migration of labour intensive assembly
operations.
Figures 22–24
Please refer to page 9 of The Westpac-BREE China Resources Quarterly PDF version.
15
Table 1: General macroeconomic data
Sep10
9.6
17.6
Dec10
9.8
17.6
Mar11
9.7
18.0
Jun11
9.5
18.1
Sep11
9.1
18.5
Dec11
8.9
17.0
Mar12
8.1
11.3
Jun12
7.6
9.7
Sep12
7.4
8.5
Dec12
7.9
9.6
Mar13
7.7
9.6
Jun13
7.5
8.0
Sep13
7.8
10.4
4.3
5.4
1.0
12.6
9.7
4.3
4.5
5.5
0.4
12.3
9.8
3.9
6.1
3.8
–0.1
10.8
9.7
3.4
5.1
4.6
0.1
10.6
9.7
3.2
5.0
4.4
0.1
10.6
9.5
2.5
5.3
4.4
–0.4
10.3
9.4
1.8
6.4
2.4
–0.7
9.1
7.5
2.1
4.7
4.0
–0.9
8.3
7.8
2.1
4.2
3.9
–0.4
8.1
7.9
2.5
4.2
3.6
–0.2
7.9
8.1
2.3
4.3
2.3
1.1
7.8
8.3
2.6
3.4
4.1
0.1
7.6
8.3
2.5
3.5
4.3
–0.1
7.8
8.4
2.0
GDP deflator %yr
Fixed investment deflator %yr
Land price index %yr
Consumer price index %yr
Non-food %yr
8.0
3.5
11.4
3.5
1.5
7.8
5.4
11.1
4.7
1.9
8.3
6.5
8.5
5.1
2.5
8.6
6.7
8.9
5.7
2.9
9.4
7.3
8.4
6.3
2.9
8.1
5.7
5.8
4.6
2.3
3.2
2.3
3.8
3.8
1.8
2.1
1.6
2.3
2.9
1.5
1.1
0.2
1.7
1.9
1.5
1.7
0.3
2.6
2.1
1.7
1.8
0.2
3.9
2.4
1.8
0.5
–0.1
5.1
2.4
1.6
2.6
0.0
6.2
2.8
1.6
Central revenue 4qma %yr
Central expenditures 4qma %yr
Central operating position 4qma %GDP
25.3
19.9
–1.5
21.3
17.8
–1.7
21.9
20.3
–1.0
24.1
23.7
–0.9
27.1
22.5
–0.7
25.0
21.6
–1.1
20.2
23.2
–1.6
14.7
18.1
–1.6
10.9
18.2
–2.2
12.8
15.1
–1.6
10.7
11.6
–1.8
10.1
10.8
–1.8
10.8
7.5
–1.5
Money supply M2 %yr
Bank loans (stock) %yr
Total credit supply (new, rolling
annual) %GDP
19.0
18.5
19.7
19.9
16.6
17.9
15.9
16.9
13.0
15.9
13.6
15.8
13.4
15.7
13.6
16.0
14.8
16.2
13.8
15.0
15.7
14.9
14.0
14.2
14.2
14.3
43.1
40.5
39.5
37.9
34.8
31.5
30.9
30.3
31.1
32.4
34.0
35.3
36.2
Exports %yr
32.2
24.9
26.4
22.0
20.5
14.3
7.6
10.5
4.5
9.4
18.3
3.7
3.9
Real GDP %yr
Nominal GDP %yr
Contributions to real GDP percentage
points ytd
Final consumption expenditure
Gross capital formation
Net exports
Secondary industry %ytd
Tertiary industry %ytd
Current Account %GDP
16
to G3
to Asia ex Japan
to Australia
to non-Asian emerging markets
Imports
from G3
from Asia ex Japan
from Australia
from non-Asian emerging markets
Trade balance USDbn
Change in FX reserves USDbn
32.2
26.8
26.7
55.2
27.4
26.9
29.0
46.0
20.1
65.6
194
23.3
23.8
29.9
39.2
29.5
27.2
26.1
63.0
30.6
63.1
199
19.7
30.9
26.5
29.7
32.8
29.7
27.9
48.5
45.0
–0.7
197
16.3
25.8
32.2
32.4
23.1
18.4
21.9
34.5
26.8
46.7
153
16.6
22.5
26.2
29.4
24.8
16.9
23.5
39.9
38.5
63.8
4
11.5
14.6
15.6
24.7
20.6
10.6
19.9
29.7
42.4
48.1
–21
7.0
9.2
10.5
15.5
7.1
4.3
10.7
18.0
26.0
1.1
124
6.8
12.1
15.1
16.7
6.5
1.6
3.2
19.0
24.6
68.8
–65
–4.9
13.4
7.6
11.7
1.6
–0.9
3.8
–8.3
4.9
79.5
45
–1.6
21.7
12.4
10.2
2.7
–4.3
10.9
–8.1
–1.7
83.3
26
3.4
36.7
5.7
22.2
8.5
–0.8
17.5
7.5
–0.9
43.5
131
–4.9
15.2
–5.3
0.4
5.0
–0.1
8.1
9.1
–6.8
65.7
54
2.6
7.5
3.0
–1.4
8.4
4.3
7.3
19.0
4.9
61.5
163
Enterprise survey - net balance
Business conditions
Profitability
Domestic orders
Foreign orders
Banking climate - % of long run average
70.3
60.4
55.9
53.2
71.4
61.1
57.9
52.0
71.1
58.2
56.9
51.1
70.6
58.7
56.7
52.5
69.3
57.6
55.3
51.6
67.5
55.5
53.2
48.7
64.4
51.2
50.5
46.9
63.7
52.6
50.2
48.8
61.1
51.4
47.4
47.5
61.8
53.1
47.7
47.1
62.6
52.8
48.8
46.6
57.1
55.6
50.3
49.9
56.3
55.1
48.2
50.1
101.
4
124.
6
108.
7
102.
6
105.
2
102.
3
102.5
98.6
98.3
87.4
82.5
87.8
95.6
89.5
92.2
94.2
70.7
63.8
64.0
76.6
106.3
121.8
130.2
134.5
140.2
142.2
127.7
106.
0
96.1
89.0
84.1
82.0
90.6
94.5
100.9
103.6
107.1
128.6
–
92.0
95.7
159.
8
115.
91.1
95.4
186.
2
97.6
97.2
95.2
182.
1
108.
92.9
95.0
168.
9
109.
89.7
93.3
90.8
95.0
92.6
94.3
89.3
91.4
89.5
92.4
92.4
96.7
97.4
95.9
90.4
92.4
89.0
90.7
163.5
145.0
146.6
138.0
na
138.0
154.9
147.0
149.5
111.9
122.5
121.7
122.5
na
122.3
115.5
119.9
119.9
Demand for loans
Ease of policy stance
Willingness to lend (corporate perception)
Urban consumer confidence - % of long
run average
Current income
Future income
Desire for more risky investments
Desire for more safe investments
17
3
0
0
Dec–
12
10.0
7.4
8.8
7.0
14.1
14.2
4.2
–
10.4
33.6
Dec–
12
20.4
17.6
17.1
19.2
42.1
39.7
1.7
19.2
18.8
18.2
Jan–
13
10.1
13.2
8.9
16.9
16.8
15.7
18.7
–
18.1
50.3
Jan–
13
20.0
16.7
16.0
18.4
36.9
14.0
3.0
20.1
21.2
24.8
Source: Westpac Economics, CEIC.
Table 2: Resource related economic indicators
Industrial production %yr 3mma
Electricity
Processed crude oil
Cement
Steel products
Non–ferrous metals
Automobiles
Civilian ships
Metal cutting tools
Fixed asset investment %yr 3mma
Manufacturing, of which
Heavy industry
Hard infrastructure, of which
Highways
Railways
Utilities
Real estate, of which
Dwellings
Non–residential
Oct–
12
9.2
3.6
5.9
9.2
6.6
8.9
7.4
–
17.2
18.8
Oct–
12
21.6
20.0
20.3
22.2
29.3
65.9
18.6
27.2
15.6
18.4
Nov–
12
9.6
5.4
8.3
9.1
11.1
11.3
5.3
–
16.4
24.4
Nov–
12
21.8
20.2
20.4
21.3
37.6
58.6
10.6
23.4
19.4
18.3
18
Feb–
13
10.0
6.3
6.5
9.0
14.0
13.7
12.1
–
18.3
57.5
Feb–
13
20.4
15.9
15.4
22.0
32.3
10.5
9.9
22.6
19.3
31.4
Mar–
13
9.6
4.6
5.6
9.1
11.7
13.2
14.8
–
12.5
52.9
Mar–
13
21.3
18.0
18.9
24.7
22.2
5.7
16.9
25.1
21.1
36.0
Apr–
13
9.4
–1.1
4.2
–1.1
7.7
11.4
4.1
–
18.8
36.0
Apr–
13
20.8
18.2
19.4
24.1
20.1
24.6
14.0
18.9
21.2
30.6
May–
13
9.1
4.9
4.0
7.6
9.1
11.3
13.7
–
22.3
30.9
May–
13
20.3
18.1
19.3
24.5
20.5
30.9
9.8
15.7
20.1
27.9
Jun–
13
9.1
6.9
5.2
9.5
9.1
9.3
12.4
–
34.2
11.2
Jun–
13
19.8
16.5
15.8
22.8
19.0
34.1
13.3
13.0
20.7
24.8
Jul–
13
9.3
7.9
6.4
10.0
10.3
8.3
12.1
Aug–
13
9.7
10.8
7.5
10.2
12.0
6.8
12.5
–27.3
–20.6
3.1
Jul–
13
19.9
16.3
14.9
23.9
23.3
15.2
20.4
13.2
20.0
25.0
–4.0
Aug–
13
20.5
18.2
16.8
25.5
27.3
11.0
23.1
12.8
17.9
26.8
Sep–
13
10.1
11.5
4.0
9.3
14.9
7.5
14.4
–
11.2
4.2
Sep–
13
20.4
20.6
19.5
25.2
29.9
1.4
21.1
13.6
18.9
28.2
15.6
Oct–
12
33.2
12.1
21.3
26.3
18.0
10.4
Nov–
12
38.5
1.7
21.9
20.8
17.9
25.4
Dec–
12
36.6
8.2
21.9
8.5
15.7
26.7
Jan–
13
28.2
14.6
22.0
0.5
15.0
37.5
Feb–
13
15.2
18.4
22.4
0.1
15.5
16.4
Mar–
13
12.0
10.9
22.0
10.0
18.0
17.4
Apr–
13
14.6
9.3
21.6
9.6
18.1
21.1
May–
13
16.3
8.8
20.9
11.6
17.6
20.5
Jun–
13
27.1
17.5
20.5
8.5
16.4
11.6
Jul–
13
18.4
15.5
20.2
15.3
16.9
11.4
Aug–
13
14.5
6.7
21.0
13.0
18.3
–1.8
Sep–
13
4.1
1.0
21.0
11.7
17.7
Volume of housing starts
Volume of housing sales
Value of housing sales - Nationwide
Eastern provinces
Central provinces
Western provinces
Oct–
12
–5.5
10.8
4.1
6.4
4.4
–2.5
Dec–
12
–0.3
16.6
9.0
11.9
8.7
1.4
Jan–
13
6.8
25.4
35.8
43.5
32.1
18.2
Jun–
13
9.1
26.5
56.0
64.1
53.6
35.2
Jul–
13
19.3
17.2
47.6
53.3
45.9
32.4
Aug–
13
13.1
11.1
40.5
44.5
39.2
29.9
Sep–
13
22.1
15.1
36.7
39.7
36.3
27.9
–4.8
1.2
Mar–
13
3.1
41.9
81.1
97.0
70.3
47.0
–
21.4
May–
13
–2.4
31.7
63.7
74.6
58.3
37.8
–2.0
Feb–
13
9.4
31.8
61.5
73.8
54.1
34.1
–
10.6
Apr–
13
3.0
38.8
73.8
87.7
65.4
42.8
Volume of land sales
Nov–
12
–7.8
16.7
6.8
9.4
6.7
–0.4
–
13.2
1.4
–0.5
8.0
27.6
22.2
40.2
22.9
57.1
65.7
71.4
92.9
95.7
94.3
88.6
84.3
85.7
90.0
84.3
3.9
–
28.4
1.7
13.3
8.1
6.9
–
22.8
33.0
14.1
11.4
20.6
–
13.8
40.0
14.3
14.7
13.3
–
26.6
23.5
11.3
11.8
14.5
–
24.0
0.7
9.2
7.8
3.5
11.2
11.4
10.2
10.5
13.3
-20.7
1.8
4.2
4.9
7.2
11.6
Bulldozer sales
Terrestrial freight
Aquatic freight
3.9
–
30.0
–1.9
12.0
5.4
9.7
9.0
4.7
1.5
9.8
6.5
-1.4
10.3
10.8
1.0
10.2
12.7
3.9
10.1
12.3
International air freight
1.5
7.2
3.1
40.5
12.4
16.2
11.7
9.8
6.6
4.3
1.1
Nov–
12
Dec–
12
Jan–
13
Feb–
13
Mar–
13
Apr–
13
-1.6
7.4
4.2
–
14.7
May–
13
Jun–
13
Jul–
13
Aug–
13
Sep–
13
Oct–
13
Off–market urban construction
Value of new project starts
Number of new project starts
Local government projects
Central government projects
State owned enterprise investment
%yr 3mma unless otherwise specified
70 city new house prices net % rising m-om
Auto sales
Excavator sales
19
Manufacturing PMI – index – of which
Output
New orders
New export orders
Order backlog
Raw material inventories
Finished goods inventories
Purchases of inputs
Imports
New orders to finished goods inventories
ratio
Source: Westpac Economics, CEIC.
50.6
52.5
51.2
50.2
45.3
47.9
48.8
51.4
48.5
50.6
52.0
51.2
50.0
45.9
47.3
49.4
52.1
49.0
50.4
51.3
51.6
48.5
44.4
50.1
47.4
53.2
49.1
50.1
51.2
50.1
47.3
44.4
49.5
46.6
50.2
48.1
50.9
52.7
52.3
50.9
47.1
47.5
50.2
51.9
48.9
50.6
52.6
51.7
48.6
43.6
47.5
47.7
51.0
48.7
50.8
53.3
51.8
49.4
44.9
47.6
48.6
51.5
50.3
50.1
52.0
50.4
47.7
42.9
47.4
48.2
49.5
47.9
50.3
52.4
50.6
49.0
44.7
47.6
47.3
50.0
48.4
51.0
52.6
52.4
50.2
44.8
48.0
47.6
52.0
50.0
51.1
52.9
52.8
50.7
46.2
48.5
47.4
52.5
50.4
51.4
54.4
52.5
50.4
45.5
48.6
45.6
52.7
50.0
1.05
1.04
1.09
1.08
1.04
1.08
1.07
1.05
1.07
1.10
1.11
1.15
20
Feature article: the reform agenda
The Third Plenum of the 18th Chinese Communist Party Central Committee will
convene from the 9th to the 12th of November, immediately following the
finalisation of this report. Third Plenums (i.e. year three in the five year political
cycle) are traditionally dedicated to the discussion of major economic policy issues.
Those occurring in the early part of a leadership tenure are particularly important for
shaping the strategic policy narrative. Expectations are accordingly high that a major
reform push will be announced at the 2013 version. Given what has already been
heard from the Xi-Li leadership, and the backdrop of apparent consensus that
China’s 2000s growth model is increasingly delivering diminishing marginal returns,
and these elevated expectations are seemingly not misplaced.
To put matters in their due sequence, it is essential to first define specific
‘imbalances’ that are clearly due to the existing policy framework, reforms of which
would garner benefits in the long run.
Starting with China’s present characteristics, it is both over-industrialised and underurbanised relative to its relevant peers when they were at equivalent levels of
income per head. Further, it is highly export oriented for such a large economy. The
“over-industrialised” assessment reflects a high proportion of secondary activity in
gross value-added and a bias towards capital accumulation in the use of income; and
the under-urbanised assessment reflects the fact that the policy framework has
prevented internal rural-urban migration from progressing at the rate at which push
and pull motivations alone would have predicted. China’s North Asian predecessors
on the industrialisation path were considerably more urbanised at this point in their
development drive.
How did China get here? To stylise heavily, China’s present state is a result of a
complex array of price, opportunity and incentive distortions that have worked to
prioritise industrial development over other potential uses of productive factors.
These distortions pervade both the real and financial spheres of the economy and
create an unbalanced underlying structure. The major beneficiaries of this
framework are the ‘commanding heights’ of industry. The ultimate saver in the
system - the household - is the passive subsidiser of industry in the historical model.
Figures 25–27
Please refer to page 14 of The Westpac-BREE China Resources Quarterly PDF version.
Key factor input costs - labour, land, energy and capital, plus the pricing of external
diseconomies – such as pollution – have been suppressed. This raises the return on
investment, encourages capital accumulation over consumption, drives income
inequality through differential access regimes and boosts international
competitiveness.
What is wrong with this picture? Nothing if you are a low income economy aspiring
to reach middle income status through industrialisation. However, once you become
a middle income country that aspires to high income status you must begin to
21
question whether the policy framework that has carried you this far will continue to
serve through the next phase of development. On this question, it is clear that
certain aspects of the current generation’s ‘inheritance’ are an impediment to
sustaining growth in aggregate living standards in an environmentally conscious way
while simultaneously promoting equality of income and opportunity. Once the
question is framed in this fashion, the debate on structural reform turns quickly to
“how fast”, rather than “when” or “if”.
The role of policy should be to design, implement and operate a framework that
reduces distortions, encourages and rewards innovation, equalises access to
education, jobs, a social safety net and capital for investment, while minimising rentseeking opportunities. The desire to achieve such an environment creates demand
for institutional reforms that can facilitate these processes of structural change in
the least disruptive fashion. The proposals advanced below are put forward in that
spirit.
The foregoing discussion highlighted both the need for action and the fundamental
issue at stake: the marketisation of the factors of production. Here the focus will be
on capital, labour and land. The energy-environment nexus will be considered on
page 26.
Regarding labour, the major distortion is the ‘hukou’ system, which ties access to
social services and social security to the administrative area of one’s registration,
which disadvantages China’s 200 million plus migrant workers, and thus suppresses
consumption. While the basic wages of migrant workers have been increasing
rapidly in recent years, they are still an underprivileged group in a number of key
ways.
Figures 28–30
Please refer to page 15 of The Westpac-BREE China Resources Quarterly PDF version.
A basic consequence of this embedded disadvantage is that migrant workers exhibit
a much higher savings rate than registered urban residents. Two changes that would
make a considerable difference would be extending access to public services and
social security (collectively ‘the safety net’) on the basis of place of residence rather
than place of registration, to both workers and their families; and ensuring that
migrants receive equivalent non-wage working conditions to urban residents.
Making these apparently obvious adjustments will require far reaching reforms of
the public finance system. China’s last major fiscal reform was in 1994, the end result
of which was a centralisation of revenues, without a corresponding centralisation of
responsibilities. For instance, pension, health and education provision remain local
matters. Over time, this has led to large funding shortfalls at the local level, which
are filled ‘creatively’ through land sales and other non-tax income, and off balance
sheet debt financing. Simply reforming hukou without a wholesale re-configuration
of vertical fiscal relations and the tax base would be near impossible. A centrally
funded, portable and universally accessible pension system will be part of the
solution. Extracting higher dividend payouts from state owned firms would help.
22
Fiscal reform brings up the issue of land (and real estate): its use, its value, its
taxation and its transfer. Budget constraints create the incentive for local
governments to maximise land sales revenue, and to liberally use land as collateral
for loans. Compensation arrangements for appropriations are vague and biased
against the occupier, which can create unrest. And the resulting revenue stream is
highly pro-cyclical. The taxation of real estate assets ought to be modernised, with a
nationwide holding tax on investment properties one potential move. If the funds
raised here were able to replace those presently coming from land sales, substantial
benefits could be gained. Allowing rural residents to use land as loan collateral
would be a further positive move.
Figures 31–33
Please refer to page 16 of The Westpac-BREE China Resources Quarterly PDF version.
Regarding capital, there has been a considerable degree of reform already enacted
in the monetary and financial sphere in both the domestic and international arenas.
Naturally there is still more to be done. Liberalisation of deposit interest rates would
be a major step towards marketising the cost of funds to banks, and by extension
their clients. It will also provide an improved rate of return for depositors, who have
had low real rates imposed upon them by the regulatory deposit ceiling and an
inability to invest abroad. This has created excess demand for real estate and given
rise to alternative savings products that have increased the opacity of financial
system funding. Furthermore, the People’s Bank should build on the current trends
towards the use of price rather than quantity based tools to manage liquidity, as it
transitions to a future where the exchange rate is no longer the anchor for monetary
policy.
To support RMB internationalization, China’s monetary and financial architecture
needs to modernise and adapt. So too will the country’s presently conservative
approach to exchange arrangements, which has resulted in an international asset
holding dominated by reserves, and a foreign liability position dominated by direct
investment. Outward direct investment is already basically free, but private portfolio
and bank-related outflows are not. While history suggests that a cautious approach
on portfolio flow is prudent, expect the new Shanghai Free Trade Zone to serve as a
testing ground for deregulation. A rise in foreign portfolio inflows, particularly
providing access to the onshore bond market, would be consistent with a long term
strategy to position the RMB as a global reserve currency.
Yet financial system reform should not stop there. Providing broader access to
capital is arguably just as important as pricing it correctly for those that presently
have access. To stylise, large firms and local governments have excessive debt levels,
while small private firms have at best moderate access to external financing.
Households have lean balance sheets, but with mortgage standards quite strict and
housing expensive relative to average incomes, ordinary citizens find it difficult to
enter the owner occupier class. Encouraging greater competition (private domestic
and foreign) as a spur for innovation, treating macro-prudential interventions as
23
exceptional rather than normal, and embracing specialist financial institutions that
service credit niches are possible answers here.
Figures 34–36
Please refer to page 17 of The Westpac-BREE China Resources Quarterly PDF version.
Steel
Average domestic prices for steel in China were down between 2%qtr and 4%qtr in
Q3. most prices increased through July to mid-August, before declining to around
RMB3500.
Steel production in China was above 65 Mt in every month of Q3 for the first time
ever. Output totalled 197 Mt for the quarter, equalling the record output achieved in
Q2.
CISA expects steel output to be more than 800 Mt in 2014, up from its estimate of
780 Mt for 2013. Li Xinchuang, deputy secretary general at CISA, added that ‘steel
output is likely to rise as long as China’s fixed asset investment can meet 17 per cent
growth and the gross domestic product can expand 7.4 per cent next year.’
Figures 37–39
Please refer to page 18 of The Westpac-BREE China Resources Quarterly PDF version.
Table 3: Steel prices (quarterly averages
Domestic RMB/t
Rebar
Hot-rolled sheet
Cold-rolled sheet
Plate
Wire rod
Benchmarks USD/t
Rebar benchmarker
HRC benchmarker
CRC benchmarker
Source: Bloomberg.
Jun11
4946
4856
5588
4956
4881
Sep11
4922
4801
5510
4853
4979
Dec11
4319
4268
5322
4312
4466
Mar12
4240
4272
5214
4273
4257
Jun12
4160
4255
5099
4255
4179
Sep12
3676
3663
4599
3655
3686
Dec12
3683
3849
4565
3703
3653
Mar13
3749
4043
4865
3934
3697
Jun13
3527
3623
4697
3676
3526
Sep13
3415
3559
4488
3554
3445
633
630
722
643
629
719
575
568
703
561
567
689
551
564
670
485
483
601
495
513
612
503
545
647
476
493
629
467
487
606
The steel industry has been a major beneficiary of improved downstream demand
emanating from firmer construction and manufacturing activity. Improved trading
conditions led to a material contraction in inventories, while sales are growing at a
healthy pace.
Large and medium sized firms report that total inventory volumes were down on a
year ago in both July and August. The month of September though saw the growth of
24
overall inventories bounce back quite sharply, implying a slowdown in output is not
too far away.
Many private sector forecasters have recently revised their projections for 2013 and
2014 output higher as a result of the strength of activity in the September quarter.
Figures 40–44
Please refer to page 19 of The Westpac-BREE China Resources Quarterly PDF version.
Iron ore
The Steel Index (TSI) 62% spot iron ore price CFR Tianjin averaged US$126 a tonne in
Q3, up US$0.20 from Q2. Contrary to seasonal patterns of recent years, the spot
price did not drop substantially in Q3 due to de-stocking. Prices instead increased
through the quarter from US$116.9 on 1 July, to a high of US$142.8 on 14 August
before moderating to end the quarter at US$131.4 a tonne.
Inventories at ports ended each month of Q3 above 70 Mt for the first time since
2012Q4. Inventories ended the quarter at 70.1 Mt, down 24%yr. The lower levels of
port stocks compared with 2012Q3, was a key factor supporting iron ore spot prices
throughout the quarter.
Figures 45–47
Please refer to page 20 of The Westpac-BREE China Resources Quarterly PDF version.
Table 4: Iron ore prices (USD/t, 62% ferrous metal content unless otherwise
indicated).
TSI spot price, CFR
Jun11
175.5
166.8
183.3
166.8
Sep11
175.9
171.3
181.0
167.7
Dec11
140.8
138.5
171.3
116.9
Mar12
141.8
147.6
147.7
134.3
Jun12
139.4
134.0
149.4
129.9
Sep12
112.1
104.2
135.5
86.7
Dec12
120.6
144.9
144.9
104.2
Quarter average
Quarter end
Quarter high
Quarter low
TSI in CNY terms,
1140
1129
895
895
882
712
753
CFR
IODEX Aust FOB
169.1 167.5 129.1 134.9 133.2 105.6 112.9
IODEX Brazil FOB
155.8 152.3 110.8 120.9 119.7 93.4
99.5
Sources: Bloomberg; Platts. CFR is cost including freight. FOB is free on board.
Mar13
148.2
137.3
158.9
132.9
Jun13
125.8
116.5
141
110.4
Sep13
126.0
131.4
142.8
116.9
922
774
812
140.5
129.0
117.9
106.5
118.5
104.6
China imported a record 217 Mt of iron ore in Q3, up by 17%yr. This was almost 20
Mt higher than the previous record set in Q2. Around two-thirds of the incremental
increase in import demand has been met by additional exports from Australia, the
origin of almost 40% of China’s imported iron ore. The value of total China’s imports
increased by 12%yr in Q3, to US$26.3 billion.
25
Australia exported a record 114 Mt to China in Q3, up 24%yr (the figure is different
to China’s imports due to transit time). Higher export volumes were supported by
record throughput from mines and infrastructure in the Pilbara. The value of exports
increased to a high of $A13.9 billion, up 54%yr.
Figures 48–52
Please refer to page 21 of The Westpac-BREE China Resources Quarterly PDF version.
Chinese miners provide the lion’s share of total iron ore supply in China. But imports
represent about 40% of supply, having risen in trend terms over the last decade.
Furthermore, Australia’s share of imports has grown.
Chinese ore reserves are very low grade so local miners face very high costs of
production. At current prices, the margins for Chinese miners are very thin and
about 17% of miners (by number of firms, unweighted) are making losses.
Imports are expected to continue to gain market share. For now, Australia is the
main source of growth but India may re-enter the market and China has agreed to
accept Vale’s super ships, lowering freight costs from Brazil.
Figures 53–57
Please refer to page 22 of The Westpac-BREE China Resources Quarterly PDF version.
26
Table 5: Iron ore & metallurgical coal summary data
Iron ore
unit
Jun-11
Sep-11
Dec-11
Mar-12
China imports
Mt
157.3
174.2
178.2
187.2
Australia
Mt
65.5
81.1
82.1
83.0
Brazil
Mt
28.6
36.2
38.1
41.6
value
USDbn
26.0
30.3
28.2
25.6
Raw production *
Mt
324
372
378
256
Iron ore stocks at ports,
Mt
92.3
92.8
94.8
96.1
end of qtr
weeks of imports
weeks
7.6
6.9
6.9
6.7
Australian exports to
Mt
73.3
81.0
88.6
78.1
China
value
AUDbn
11.2
12.4
11.1
9.2
Metallurgical coal
China imports
Mt
8.7
11.2
14.3
12.2
value
USDmn
1153
1632
2230
2022
Australian exports to
Mt
2.0
4.3
5.4
6.9
China
value
AUDmn
387
761
980
1092
Source: Bloomberg, ABS, CEIC. * Run of mine output with a low iron content.
27
Jun-12
179.8
82.7
35.4
25.1
342
Sep-12
185.3
91.6
38.8
23.4
361
Dec-12
193.1
94.3
48.8
21.2
369
Mar-13
186.5
89.8
38.4
24.2
287
Jun-13
198.0
102.6
32.1
26.3
357
Sep-13
216.7
111.8
40.5
26.3
387
94.8
92.6
70.5
68.1
71.5
70.1
6.9
6.5
4.7
4.7
4.7
4.2
86.1
91.8
100.9
92.9
107.9
114.0
10.8
9.0
9.5
11.2
12.3
13.9
15.4
2355
8.9
1220
17.0
2048
17.2
2431
18.1
2498
19.4
2414
4.8
3.6
13.0
9.1
9.8
12.3
751
441
1584
1284
1296
1559
Metallurgical coal
Spot prices for metallurgical coal increased, albeit at a low rate, throughout July and
August, before plateauing in September. The low volatility benchmark-grade variety
ended the quarter at around US$165 a tonne, the highest month-end price since
March 2013.
Imports of metallurgical coal into China reached a new record of 19.4 Mt in Q3, up
118%yr. Imports from Australia increased 346%yr to total 7.7 Mt, while imports from
Canada and Russia were up more than 100%yr.
Australia’s exports of metallurgical coal to China were 12.3 Mt in Q3, at a value of
$A1.6 billion. Both figures were up by more than 240%yr.
Figures 58–60
Please refer to page 24 of The Westpac-BREE China Resources Quarterly PDF version.
Table 6: Metallurgical coal prices (quarterly average spot prices).
unit
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
Prem Low Vol
USD/t 308.2 255.1 230.1 236.3 188.0 169.0 179.7 155.0 154.7
HCC CFR China
Low Vol PCI CFR
USD/t na
174.7 165.3 164.9 135.2 136.3 154.9 127.2 125.9
China
Semi Soft CFR
USD/t na
167.4 156.4 141.3 114.6 120.4 132.6 114.5 109.1
China
Prem Low Vol
USD/t 291.1 237.2 214.3 221.0 174.3 155.2 165.9 141.5 130.7
HCC FOB Aust
Prem Low Vol
AUD/t 277.2 234.6 203.0 219.2 168.0 149.4 159.6 142.6 143.7
HCC FOB Aust
Sources: Bloomberg; Platts. CFR is cost including freight. FOB is free on board. HCC is hard coking coal.
China is far and away the world’s biggest consumer of metallurgical coal. It is also the
world’s biggest producer. Australia remains a major player in the seaborne market
but China’s land neighbours are significant in the Chinese market. The US has
emerged as an opportunistic supplier on global price spikes.
Australian exports of metallurgical coal returned to pre flood levels in 2013 and spot
prices weakened correspondingly.
The near term outlook is subdued given that growth in Chinese steel output has
plateaued, However, current spot prices see as much as 20% of seaborne supply
being sold at a loss FOB which implies limited downside.
Figures 61–65
Please refer to page 25 of The Westpac-BREE China Resources Quarterly PDF version.
28
Developments in China’s energy policy
In August, 12 measures to accelerate energy efficiency and conservation efforts were
announced by the NDRC including the closure of out-dated production capacity in
steel, aluminium, cement and glass; and promoting the development and uptake of
green products and technology.
Commencing 30 August 2013, the State Council imposed a 3 per cent tax on lignite
imports. Indonesian coal, China’s largest source of imported lignite, may be exempt
as coal import tariffs were eliminated under the China–ASEAN FTA.
In September the Beijing municipal government announced plans to reduce Beijing’s
coal consumption by more than 50 per cent compared with 2012 over the next five
years as part of its clean air action plan. This will reduce the share of coal in the
Beijing energy mix to 10 per cent. Gas will likely displace coal use in Beijing,
particularly in electricity generation, but this depends on growth in gas supply, which
is limited by domestic output and import capacity.
As part of the Action Plan to Tackle Air Pollution the Chinese Government
announced a ban on new coal-fired power plants in key industrial areas—Beijing,
Shanghai and Guangzhou. The impact on growth in China’s coal consumption is likely
to be minimal with few plant developments under consideration in these cities.
Inland and western regions are expected to be the main source of growth in China’s
coal consumption in the medium term. The plan also aims to reduce the share of
coal in the primary energy mix to less than 65 per cent by 2017 (from around 70 per
cent currently).
In mid-September, an incentive plan for purchasing electric vehicles resumed (the
previous three-year program ended last year) to stimulate their uptake and use,
thereby reducing reliance on fossil fuels. The incentive does not extend to gasolineelectric hybrid vehicles. The incentives will be reduced by 10 per cent in 2014 and
2015.
A pilot carbon trading scheme was launched in Shenzhen in June 2013. The first two
transactions were at 28 yuan (US$4.60) and 30 yuan a tonne (US$4.90), respectively.
By mid-October, the price was around 75 yuan a tonne (US$12.30), down from a
peak of 92.95 yuan (US$15.25) a tonne in mid-September. A number of other pilot
schemes will be introduced over the course of the next two years before the central
government decides whether to establish a national market.
To improve coal mine safety, China announced plans to close around 2000 coal
mines by the end of 2015. Mines with an annual capacity below 90 000 tonnes and
mines with a record of poor safety performance will be forced to close. To assist the
process, the government has indicated that it would offer fiscal incentives to larger
producers to acquire smaller players.
In October, the Chinese Government announced plans to control the number of new
gas users over the coming quarter as supply shortages emerge because of strong
29
consumption growth, lower than expected domestic production growth and limited
pipeline and storage capacity.
Electricity trends
In Q3, China’s electricity generation increased by 11.6%yr to total 1409 billion
kilowatt hours. This increase reflects stronger demand for power associated with
rising heavy industrial output and hotter weather in some regions, compared with
2012, supporting higher air conditioner use.
In line with its stage of economic development, secondary industry is the largest
consumer of electricity in China, accounting for around three-quarters of total
consumption.
China’s investment in new electricity generating capacity increased by 12%yr in Q3.
Mirroring trends observed since 2010, new investment was higher in hydro
generating capacity (up 51%yr in Q3) than in thermal sources (up 8%yr).
Figures 66–71
Please refer to page 27 of The Westpac-BREE China Resources Quarterly PDF version.
Thermal coal
Key thermal coal FOB prices continued to decline in Q3. Newcastle spot prices
decreased 9.8%qtr, Richards Bay 9.4%qtr, Baltic 5.4%qtr and QHD 6.3%qtr. Although
again these decreases were offset partially by depreciations in local currencies
against the USD. In AUD terms, the Newcastle spot price decreased by 2.8%qtr, and
averaged $A84.3.
At prices around current levels, the margins of many coal miners around the world
are being squeezed. It is likely that some mines in key exporting countries are
already operating at a loss.
Figures 72–74
Please refer to page 28 of The Westpac-BREE China Resources Quarterly PDF version.
Table 7: Thermal coal prices (USD/t, NAR unless otherwise indicated).
Quarterly
averages
QHD 5800kcal
QHD 5800kcal
RMB/t
Newcastle
6000kcal
Newcastle
Jun11
144.0
Sep11
149.5
Dec11
153.8
Mar12
143.0
Jun12
139.8
Sep12
117.2
Dec12
116.6
Mar13
114.9
Jun13
112.8
Sep13
105.8
935.4
959.5
977.6
901.6
885.5
744.6
728.7
715.2
694.4
647.8
120.1
120.5
113.9
112.3
94.5
86.1
84.3
91.3
85.4
77.1
113.0
115.1
112.0
106.4
93.5
82.7
81.2
88.0
86.7
84.3
30
6000kcal AUD/t
Richards Bay
121.1 116.6 106.6 104.8
6000kcal
Baltic 6000kcal
123.0 118.9 106.7 95.3
Sources: Bloomberg. NAR stands for net as received.
93.5
87.5
85.8
84.8
80.5
73.0
83.7
84.4
84.4
82.0
75.5
71.4
China’s imports of thermal coal (including lignite) increased 12%yr in Q3, to total
60.9 Mt. Imports from Australia were up 51%yr, to a new quarterly record of 17.0 Mt
and Australia’s market share increased to 28% (up from 21% in 2012Q3). Imports
from Indonesia were also up (18%yr) and totalled 27.8 Mt.
Combined, Australia and Indonesia made up three-quarters of China’s total imports
of thermal coal. However, imports account for only a small portion of China’s total
coal demand.
Figures 75–79
Please refer to page 29 of The Westpac-BREE China Resources Quarterly PDF version.
31
Table 8: Thermal coal summary data
unit
China imports
Mt
Indonesia
Mt
Australia
Mt
value
USDmn
End of quarter stocks at ports
Mt
weeks of imports
Australian exports to China
Mt
value
AUDmn
Sources: ABS, Bloomberg, McCloskey.
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
37.8
18.6
3.4
2904
20.9
7.2
5.4
522
53.5
29.7
8.3
4533
19.4
4.7
5.9
591
58.8
34.9
7.6
4829
22.3
4.9
7.1
720
49.3
25.1
8.1
4940
22.4
5.9
5.1
452
62.9
30.5
11.4
5969
27.4
5.6
10.3
955
54.4
23.6
11.3
4885
22.9
5.5
7.5
626
68.5
36.5
14.8
5291
24.7
4.7
11.4
843
62.8
33.1
12.9
4846
26.8
5.5
7.9
562
60.5
29.4
12.2
4679
31.5
6.8
11.3
828
60.9
27.8
17.0
4647
25.1
5.4
11.6
886
32
Oil
Global oil prices were higher on average in Q3, supported by stronger economic
performance in key consuming economies and geopolitical tensions in Libya and the
Middle East.
In line with world oil price movements, China’s gasoline and diesel benchmark retail
prices were increased by RMB90/t and RMB85/t in mid-September, respectively, the
third adjustment in two months. Gasoline and diesel prices were subsequently
reduced by RMB245/t and RMB235/t in late September. Domestic prices ended the
quarter 5% higher than at the end of June.
Figures 80–82
Please refer to page 31 of The Westpac-BREE China Resources Quarterly PDF version.
Table 9: Crude oil spot prices (USD/bbl, quarterly)
Brent
Jun11
Quarter
117.0
average
Quarter end
112.5
Quarter high
126.7
Quarter low
105.1
Tapis
Quarter
124.4
average
Quarter end
119.7
Quarter high
132.1
Quarter low
113.3
West Texas
intermediate
Quarter
102.3
average
Quarter end
95.4
Quarter high
113.9
Quarter low
90.6
Source: Bloomberg.
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
112.1
109.0
118.4
108.8
109.4
110.1
112.6
103.3
109.7
102.8
118.8
102.6
107.4
115.0
99.8
122.9
126.2
109.8
97.8
125.4
89.2
112.4
116.9
97.3
111.1
115.8
105.7
110.0
118.9
107.5
102.2
111.1
97.7
108.4
116.6
103.0
121.0
118.9
128.0
117.2
115.9
113.3
118.3
108.9
115.9
115.0
127.2
114.3
117.5
125.5
113.0
133.0
135.6
119.5
101.1
133.7
97.9
119.0
124.5
103.1
114.1
117.3
108.1
116.0
125.2
113.7
109.7
116.1
103.8
114.5
122.2
109.1
89.5
94.0
103.0
93.3
92.2
88.2
94.3
94.1
105.8
79.2
99.6
79.2
98.8
102.6
75.7
103.0
109.5
96.4
85.0
106.2
77.7
92.2
99.0
83.8
91.8
92.5
84.4
97.2
97.9
90.1
96.6
98.4
86.7
102.3
110.5
98.0
China imports more than half of its oil use, with the bulk being sourced from the Middle East,
Russia and Angola. Chinese oil imports increased by 21%yr in Q3 to 73 million tonnes,
setting a daily record in September. During the quarter, China overtook the US to become
the world’s largest oil importer.
By volume, China’s imports of crude oil from Australia increased by 97%yr to 1234 kt in Q3 to
meet its growing demand. The value of Australian crude oil exports to China increased by
108%yr to US$1.1 billion in Q3 supported by higher volumes and prices.
Figures 83–87
Please refer to page 32 of The Westpac-BREE China Resources Quarterly PDF version.
33
34
Table 10: Oil and gas summary data
Oil
China imports
Saudi Arabia
Angola
Russia
Iran
Oman
other
China production
Crude
Gasoline
Diesel
Chinese imports from
Australia
value
Gas
China pipeline imports
China LNG imports
Qatar
Australia
Indonesia
Malaysia
other
China production
Chinese imports from
Australia
value
Source: CEIC.
unit
Mt
Mt
Mt
Mt
Mt
Mt
Mt
Jun-11
62.8
11.6
7.5
4.9
7.0
3.8
28.0
Sep-11
60.9
12.0
7.5
4.0
6.8
5.6
25.0
Dec-11
65.4
14.1
8.1
5.7
7.5
4.8
25.2
Mar-12
70.6
14.3
9.5
7.2
4.3
4.3
31.1
Jun-12
69.5
13.7
11.5
5.6
6.4
4.7
27.6
Sep-12
60.3
11.6
9.8
5.5
5.1
4.8
23.5
Dec-12
70.7
14.3
9.4
6.1
6.2
5.8
28.9
Mar-13
69.0
14.0
9.7
6.0
5.0
5.6
28.7
Jun-13
69.2
13.0
10.4
6.4
5.5
5.7
28.2
Sep-13
73.2
13.9
10.5
6.1
5.5
6.8
30.4
Mt
Mt
Mt
51.5
19.5
41.9
50.7
20.5
41.1
50.1
21.0
42.5
51.0
21.5
42.8
50.8
21.1
41.8
52.0
22.6
41.6
53.2
24.1
44.3
17.7
8.3
14.8
52.3
24.0
42.1
51.4
24.0
42.7
kt
1112
962
1447
767
1361
626
961
532
798
1234
USDmn
929
781
1144
703
1230
505
822
453
631
1052
Mt
kt
kt
kt
kt
kt
kt
Bcm
2.7
2860
502
906
483
470
499
24.2
2.7
3380
456
972
597
410
946
24.3
3.0
3650
1037
1039
605
359
610
27.3
3.5
3260
1021
779
551
406
503
33.2
3.7
3410
1161
908
666
426
248
25.0
3.9
3800
1526
904
543
444
384
24.8
4.6
4230
1284
972
665
577
733
28.7
4.5
4180
1933
842
363
648
394
9.9
4.9
4160
1432
974
788
645
320
26.9
5.2
4560
1618
834
605
679
823
26.4
kt
906
972
1039
779
908
904
972
842
974
834
USDmn
192
166
177
132
160
173
164
143
183
146
35
Gas
The import unit value of LNG and pipeline gas declined by 4%yr and 11%yr,
respectively in Q3. Domestic retail prices are regulated so do not demonstrate the
same volatility as import prices.
China accounted for around 4% of world gas consumption in 2012. The majority of
China’s gas consumption is used in the residential and industrial sectors.
Gas shortages are expected to emerge over winter as consumption outpaces supply.
In October the Government announced plans to limit growth in new users,
encourage utilities to reduce gas-fired generation, increase domestic supply and
accelerate the completion of new LNG terminals.
Figures 88–92
Please refer to page 34 of The Westpac-BREE China Resources Quarterly PDF version.
In Q3, China’s pipeline gas and LNG imports increased by 33%yr and 20%yr,
respectively, in response to a rapid increase in consumption as China promotes the
uptake of gas in heating and transport applications and limited domestic gas
availability.
Australia is the second largest source of China’s LNG imports, after Qatar. LNG
imports from Australia declined by 8%yr to 833.9 kt in Q3, while imports from Qatar,
Malaysia and Indonesia increased substantially. The value of LNG imports from
Australia declined by 16%yr in Q3 to US$145.7 million.
Figures 93–97
Please refer to page 35 of The Westpac-BREE China Resources Quarterly PDF version.
Uranium
Figures 98–101
Please refer to page 36 of The Westpac-BREE China Resources Quarterly PDF version.
Table 11: Uranium summary data.
Uranium spot
price U3O8
China nuclear
power output
Investment in
nuclear
China uranium
Units
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
USD/lb
51.7
52.4
51.7
51.4
48.8
43.0
42.6
40.5
35.0
bn kWh
23.6
21.4
20.9
21.8
25.6
25.4
22.8
23.8
30.3
RMBbn
19.3
23.2
17.1
15.0
19.8
25.9
12.1
14.2
14.6
t
3620
7150
1978
0
2510
10734
4516
2567
9069
36
imports
Value
USDmn
440
807
231
0
290
Source: CEIC, Cameco, The Ux Consulting Company, Trade Tech.
1189
491
292
The uranium spot price continued its post-Fukushima decline in Q3 and averaged
US$35 for the quarter. This –14%qtr change is the largest single quarter price change
in the past 2 years and reflects the continued surplus of supply associated with the
shutdown of Japan’s nuclear power industry. Coinciding with the low uranium price,
China’s uranium import volumes in Q3 increased 261%yr.
China’s nuclear power generation in Q3 increased 18%yr as a result of 2 new
reactors (Ningde 1 and Hongyanhe 1) starting operation in 2013. China now has 13.8
GWe of nuclear power capacity online and a further 32.7 GWe of capacity under
construction.
Figures 102–106
Please refer to page 37 of The Westpac-BREE China Resources Quarterly PDF version.
Gold
After trading around US$1200 at the end of June, the price of gold rebounded to a
high of around US$1420 in August amid geopolitical concerns over the escalating
conflict in Syria. Speculation, which proved incorrect, over the US Federal Reserve’s
decision to taper its quantitative easing program pushed prices lower through
September. For Q3 as a whole, prices averaged US$1330, a 20%yr decline.
Trends in Chinese gold prices mirrored world markets, declining by 22%yr to average
RMB265 a gram in Q3.
China’s gold imports through Hong Kong increased by 95%yr over the first eight
months of 2013. In September, the People’s Bank of China announced plans to allow
more companies to trade gold and reduce restrictions on individual buyers. If
implemented, this could support higher imports of gold in Q4.
China currently holds little of its foreign exchange reserves in gold. However, there is
speculation that the People’s Bank of China may have taken advantage of low gold
prices to diversify its foreign exchange reserve portfolio, which is largely based on US
Treasury bonds.
Figures 107–108
Please refer to page 38 of The Westpac-BREE China Resources Quarterly PDF version.
Table 12: Gold prices (USD/oz unless specified otherwise)
LBMA spot prices
Jun11
Sep11
Dec11
Mar12
37
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
931
Quarter average
1509
Quarter end
1500
Quarter high
1564
Quarter low
1429
Shanghai avg
316
RMB/g
Shanghai avg
49
USD/g
Sources: LME, Bloomberg.
1706
1624
1900
1488
1683
1564
1795
1546
1691
1668
1784
1566
1612
1597
1678
1540
1653
1772
1777
1567
1718
1675
1790
1648
1632
1597
1693
1565
1417
1235
1600
1201
1330
1329
1418
1223
353
346
345
329
338
345
329
286
265
55
54
55
52
53
55
53
46
43
In 2012, China accounted for 25% of world gold fabrication consumption and was the
second largest consumer behind India. Policies to restrain gold purchases in India
and strong growth in Chinese consumption may allow China to challenge India as the
largest consumer of gold in 2013.
The volume of Australia’s gold exports to China increased by 81%yr in Q3 in line with
increased demand for gold as an investment asset and for jewellery in the lead up to
Golden Week in early October. Higher volumes contributed to a 71%yr increase in
earnings in Q3.
Figures 109–113
Please refer to page 39 of The Westpac-BREE China Resources Quarterly PDF version.
38
Table 13: Gold and silver summary data
Gold
China imports (via Hong
Kong)
Domestic production
Australian exports to China
value
Silver
China imports
Domestic production
Source: CEIC, ABS.
unit
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
t
45.2
138.7
227.6
135.5
247.3
199.1
252.6
371.9
365.7
377.0
t
t
USDmn
32.4
3.0
136
31.3
2.2
107
32.1
16.4
864
29.6
17.8
925
31.7
49.9
2529
43.2
23.9
1185
40.1
18.9
1001
39.1
36.9
1845
41.0
44.5
2064
na
43.3
2031
t
t
118.0
3.0
154.2
2.9
129.3
3.7
93.7
3.2
111.4
3.2
110.3
3.3
99.7
3.8
83.6
na
85.5
na
99.9
na
39
Silver
Figures 114–117
Please refer to page 41 of The Westpac-BREE China Resources Quarterly PDF version.
Table 14: Silver prices (USD/oz unless specified otherwise)
LBMA spot
Jun- Sepprices
11
11
Quarter average
38.5 38.9
Quarter end
34.7 29.9
Quarter high
48.4 43.8
Quarter low
33.6 29.9
Changjiang
8.44 8.34
RMB/g
Changjiang
1.29 1.29
USD/g
Sources: LME, Bloomberg.
Dec11
31.8
27.8
35.3
27.1
Mar12
32.7
32.3
36.9
27.9
Jun12
29.5
27.5
33.0
26.4
Sep12
29.9
34.5
34.8
26.8
Dec12
32.6
30.3
35.0
29.9
Mar13
30.1
28.5
32.3
28.4
Jun13
23.2
19.7
28.0
18.5
Sep13
21.5
21.7
24.5
18.9
6.81
6.79
6.18
6.27
6.65
6.11
4.72
4.28
1.07
1.07
0.98
0.99
1.05
0.98
0.76
0.70
Copper
Higher stocks at LME warehouses compared with 2012 contributed to a decline in
LME copper prices during 2013. The LME copper price decreased by 8.2%yr to
average US$7073 in Q3.
Chinese onshore copper prices in Q3 performed slightly worse than the LME,
decreasing by 8.5%yr in response to increasing domestic supply of refined copper.
Chinese refined copper production increased by 19%yr to total 1712kt in Q3 driven
by higher demand, increased availability of domestic concentrate and new, efficient
smelter capacity replacing out-dated facilities.
Figures 118–120
Please refer to page 42 of The Westpac-BREE China Resources Quarterly PDF version.
Table 15: Copper prices (USD/t unless specified otherwise)
LME spot
prices
Quarter
average
Quarter
end
Quarter
high
Quarter
low
Jun-11
Sep11
Dec11
Mar12
Jun-12
Sep12
Dec12
Mar13
Jun-13
Sep13
9137
8982
7489
8310
7869
7706
7909
7931
7148
7073
9301
7132
7554
8480
7605
8268
7915
7583
6751
7291
9823
9827
8040
8658
8576
8401
8340
8243
7547
7341
8537
6976
6785
7471
7252
7327
7541
7539
6638
6719
40
3 Month
9155
9003
forward
Shanghai
69488
67506
avg RMB/t
Shanghai
10613
10431
avg USD/t
Sources: LME, Bloomberg.
7511
8314
7829
7712
7921
7964
7180
7096
56590
58931
56554
56518
56984
57189
52778
51690
8868
9292
8965
8922
8971
9161
8473
8438
China’s copper imports (in metal content) increased by 23%yr in Q3 to total 1731 kt,
supported by higher than anticipated economic activity.
Chile remained the principal supplier of copper to China accounting for around 30%
of total imports in Q3. Australia’s share of Chinese imports rose from 5.7% to 7.8%,
to total 135kt in Q3.
A significant increase in refined copper exports in Q3 resulted in an 81%yr increase in
total copper exports (in metal content) from Australia to China. Accordingly, export
values rose over the same period by 63%yr.
Figures 121–125
Please refer to page 43 of The Westpac-BREE China Resources Quarterly PDF version.
41
Table 16: Copper summary data
unit
Jun-11
China imports
kt
956
Australia
kt
77
Chile
kt
323
Peru
kt
72
other
kt
484
Refined production
kt
1327
World stocks
kt
1068
weeks of stocks
weeks
2.8
Australian exports to
kt
70.0
China
value
AUDmn
596
Sources: Bloomberg, World Metal Statistics.
Sep-11
1224
104
417
93
609
1412
1107
2.9
Dec-11
1582
82
557
136
808
1231
981
2.5
Mar-12
1597
97
558
127
816
1300
961
2.4
Jun-12
1327
75
393
125
734
1465
860
2.2
Sep-12
1403
80
439
127
757
1440
860
2.2
Dec-12
1477
78
485
169
744
1618
1061
2.8
Mar-13
1356
97
436
171
652
1546
1297
3.4
Jun-13
1380
157
383
120
720
1693
1319
3.3
Sep-13
1731
135
519
200
877
1712
na
na
79.9
92.7
80.5
49.9
69.7
90.4
108.6
141.8
126.1
699
751
661
385
554
660
844
991
900
42
Aluminium
Excess global supply contributed to LME prices decreasing by 7.2%yr to average
US$1781 in Q3. LME Spot prices peaked at US$1877 during August before falling to
US$1730 in mid-September.
Changjiang (Shanghai) prices mirrored LME price movements, averaging RMB14 363
in Q3, a 7.1%yr decline. Lower prices have put further pressure on Chinese producers,
with the majority believed to be operating below cost.
Chinese production increased 5.0%yr in Q3 to total 5626kt. This is despite the
National Development and Reform Commission stating in August that 273kt of outdated capacity would be closed by the end of September.
Figures 126–128
Please refer to page 45 of The Westpac-BREE China Resources Quarterly PDF version.
Table 17: Aluminium prices (USD/t unless specified otherwise)
LME spot
JunSepprices
11
11
Quarter
2600
2399
average
Quarter
2509
2207
end
Quarter
2772
2623
high
Quarter
2466
2170
low
3 Month
2618
2432
forward
Shanghai
16762 17759
avg RMB/t
Shanghai
2560
2745
avg USD/t
Sources: LME, Bloomberg.
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun-13
Sep13
2090
2177
1978
1918
1997
2003
1835
1781
1971
2099
1835
2094
2040
1882
1731
1803
2234
2308
2091
2177
2164
2123
1939
1877
1945
2004
1811
1794
1874
1868
1720
1730
2110
2216
2019
1945
2017
2042
1870
1827
16244
15957
15946
15467
15161
14722
14551
14363
2545
2516
2528
2442
2387
2358
2336
2345
As a result of higher domestic production, China’s unwrought aluminium imports
decreased 23%yr to total 138kt in Q3.
China imported 32kt of unwrought aluminium from Australia, a 24%yr increase, as
imports from Russia fell 46%yr due to rising production costs and cuts. Australia was
the largest supplier to China in Q3.
Australia’s refined aluminium exports to China decreased by 14.1%yr in Q3. However
the value of exports increased by 2.3%yr due to a higher Australian dollar price for
aluminium.
43
Figures 129–133
Please refer to page 46 of The Westpac-BREE China Resources Quarterly PDF version.
44
Table 18: Aluminium summary data
unit
Jun-11
China imports
kt
62.2
Australia
kt
15.2
India
kt
2.8
Russia
kt
19.8
other
kt
24.4
Refined production
kt
4650
World stocks
kt
6601
weeks of stocks
weeks
7.8
Australian exports to
kt
12.4
China
value
AUDmn
32.3
Sources: Bloomberg, World Metal Statistics.
Sep-11
59.4
15.6
1.5
9.3
33.0
4790
6436
7.6
Dec-11
109.9
24.0
5.6
30.0
50.3
4586
6999
9.0
Mar-12
209.0
38.2
10.0
70.5
90.3
4691
7239
8.8
Jun-12
144.9
18.3
5.0
36.9
84.7
5002
6839
7.7
Sep-12
179.8
25.5
28.0
53.3
72.9
5357
7203
8.2
Dec-12
104.6
21.6
0.5
19.6
62.9
5217
7361
8.3
Mar-13
67.8
14.5
0.0
18.1
35.2
5215
7400
8.7
Jun-13
82.8
14.3
2.9
28.1
37.6
5363
7439
8.4
Sep-13
137.7
31.7
13.1
28.9
64.0
5626
na
na
10.9
24.8
36.5
12.6
31.3
18.5
10.1
11.8
26.9
27.1
57.3
77.5
27.6
62.0
39.4
22.7
25.2
63.4
45
Nickel
LME nickel prices fluctuated between a high of US$14 775 in August to a low of
US$13 160 in July. Excess supply contributed to prices averaging US$13 916 in Q3, a
decrease of 14.7%yr.
Shanghai prices decreased by 16%yr to RMB 98 900 in Q3. Domestic production
decreased as prolonged lower nickel pig iron (NPI) prices compelled producers cut
output.
The value of China’s imports fell by 6.6%yr to US$1.77 billion, driven largely by lower
nickel prices.
Figures 134–136
Please refer to page 44 of The Westpac-BREE China Resources Quarterly PDF version.
Table 19: Nickel prices (USD/t unless specified otherwise)
LME spot prices
Jun11
Quarter
average
24165
Quarter end
23125
Quarter high
27420
Quarter low
21410
3 Month
24189
forward
Shanghai avg
18309
RMB/t
5
Shanghai avg
27958
USD/t
Sources: LME, Bloomberg.
Sep11
2204
3
1830
5
2508
0
1792
5
2207
5
1650
38
2550
3
Dec11
1830
3
1828
0
1982
5
1693
5
1832
8
1334
08
2090
4
Mar12
Jun12
Sep12
Dec12
19651
17146
16317
16967
17430
16475
18520
17085
21830
18400
18520
18840
17405
16025
15190
15850
19721
17215
16381
17036
13802
5
12666
9
11807
0
12092
0
21760
20080
18640
19038
Mar
-13
173
14
165
40
186
00
164
25
173
87
121
306
194
32
The value of China’s imports from Australia fell by 25%yr, with the Q3 share of
imports decreasing to 6.7%, compared with 8.4% in 2012Q3. Indonesia and the
Philippines combined again contributed the majority of imports with 57% in Q3.
Australia’s total nickel export earnings decreased by 20%yr in 2013H1. The fall in
values is a result of a lower world nickel prices that offset a 1.1%yr increase in export
volumes over the same period.
Figures 137–141
Please refer to page 49 of The Westpac-BREE China Resources Quarterly PDF version.
46
Jun13
1496
3
1368
0
1639
0
1356
0
1503
9
1060
53
1702
6
Sep13
13916
13860
14775
13160
13996
98866
16139
Table 20: Nickel summary data
unit
Jun-11
Sep-11
Dec-11
Mar-12
China imports
USDmn
2523
2801
2597
1731
Australia
USDmn
333
369
265
221
Canada
USDmn
229
166
156
166
Russia
USDmn
623
646
676
309
Indonesia
USDmn
671
801
814
699
Philippines
USDmn
312
522
439
114
other
USDmn
354
296
248
221
Refined production
kt
115.9
151.4
129.4
104.6
World stocks
kt
113.2
103.4
96.8
105.1
weeks of stocks
weeks
3.6
3.0
2.8
3.3
Australian exports to
kt
58.0
60.9
68.6
61.2
China
value
AUDmn
988
908
990
1077
Source: Bloomberg, World Metal Statistics, International Nickel Study Group.
47
Jun-12
2086
252
103
196
871
445
220
148.7
109.7
3.4
Sep-12
1890
158
93
290
425
673
252
172.0
130.4
3.8
Dec-12
2376
147
110
514
985
411
209
198.0
161.6
4.5
Mar-13
2149
172
143
456
952
168
258
151.7
185.9
5.5
Jun-13
1842
189
107
257
629
442
217
161.3
206.9
9.2
Sep-13
1766
119
86
270
521
482
287
na
246.7
na
64.3
68.8
67.4
60.5
66.5
na
1081
936
911
827
892
na
Zinc
Global oversupply contributed to a 1.4%yr decline in LME zinc prices to average
US$1860 in Q3. LME prices peaked at US$1956 in August after recovering from low
of US$1793 in late July.
Contrary to LME prices, Shanghai zinc prices increased 0.6%yr to RMB14700 as
consumers utilised zinc stocks.
Despite zinc prices being below the estimated Chinese breakeven price, refined
production in Q3 increased by 17.3%yr to 1336 kt.
Figures 142–144
Please refer to page 51 of The Westpac-BREE China Resources Quarterly PDF version.
Table 21: Zinc prices (USD/t unless specified otherwise)
LME spot prices
Jun11
Quarter
2250
average
Quarter end
2315
Quarter high
2496
Quarter low
2099
3 Month
2269
forward
Shanghai avg
17314
RMB/t
Shanghai avg
2644
USD/t
Sources: LME, Bloomberg.
Sep11
Dec11
Mar12
Jun12
Sep12
Dec12
Mar13
Jun13
Sep13
2224
1897
2025
1928
1885
1947
2033
1840
1859
1905
2495
1860
1828
2060
1750
2003
2179
1827
1843
2049
1760
2088
2105
1760
2035
2098
1785
1871
2188
1854
1823
1925
1784
1877
1956
1793
2251
1909
2040
1932
1902
1979
2057
1875
1896
17342
15173
15369
15132
14640
15021
15330
14596
14726
2680
2378
2423
2399
2311
2365
2456
2343
2404
China is the largest refined zinc producer in the world, accounting for 38% of
production in 2012. Despite this, China still imports large volumes of refined zinc and
in 2012 was the second largest importer of refined zinc (13% of total world imports).
China’s zinc imports increased 12.9%ytd in the first eight months of 2013. A rise in
ores and concentrates imports to support higher domestic refined production drove
the increase.
Around 49% of Australia’s zinc exports (in metal content) are destined for China. In
Q3, Australia’s zinc export earnings decreased by 19.4%yr with volumes (in metal
content) decreasing by 16.3%yr in the same period. The fall in earnings was driven by
a decrease in the volume of refined zinc exports.
China is the world’s largest zinc consumer (44% of total refined consumption), but
per capita consumption is still reasonably low. There is the potential for zinc
intensity to continue to increase as the economy develops.
48
Figures 145–148
Please refer to page 52 of The Westpac-BREE China Resources Quarterly PDF version.
49
Table 22: Zinc summary data
unit
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
China imports
kt
420.7
466.2
456.3
385.8
281.6
Australia
kt
125.7
168.6
204.7
134.3
78.3
Kazakhstan
kt
22.4
38.0
22.6
20.9
17.7
South Korea
kt
35.6
19.1
20.5
12.3
18.2
Peru
kt
65.9
42.4
36.3
24.3
17.7
Turkey
kt
2.6
11.6
6.7
9.4
12.8
other
kt
168.6
186.5
165.5
184.6
136.9
Refined production
kt
1299
1293
1388
1169
1179
World stocks
kt
1615
1635
1619
1702
1758
weeks of stocks
weeks
6.8
6.9
6.4
7.6
7.5
Australian exports to
kt
176.2
214.6
133.3
147.7
186.0
China
value
AUDmn 115.4
147.5
95.3
106.0
130.6
Sources: Bloomberg, World Metal Statistics, International Lead and Zinc Study Group.
50
Sep-12
395.2
161.6
38.3
11.1
9.0
11.0
164.1
1139
1679
7.1
Dec-12
406.3
133.2
44.4
1.5
34.1
18.3
174.7
1343
1929
7.8
Mar-13
346.4
92.8
45.5
6.8
35.2
7.4
158.7
1241
1903
8.1
Jun-13
407.6
160.4
37.8
10.3
18.6
13.0
167.5
1329
1757
7.0
Sep-13
na
na
na
na
na
na
na
1336
na
na
220.3
175.6
175.6
214.4
184.5
153.5
110.2
110.2
155.9
123.6
Lead
Figures 149–152
Please refer to page 54 of The Westpac-BREE China Resources Quarterly PDF version.
Table 23: Lead prices (USD/t unless specified otherwise)
LME spot prices
Quarter average
Quarter end
Quarter high
Quarter low
3 Month forward
Jun11
2550
2623
2939
2272
Shanghai avg
16539
RMB/t
Shanghai avg
2526
USD/t
Sources: LME, Bloomberg.
Sep11
2459
2061
2745
1994
Dec11
1983
1980
2119
1792
Mar12
2093
2021
2288
1943
Jun12
1974
1796
2156
1744
Sep12
1975
2300
2300
1817
Dec12
2199
2340
2340
2002
Mar13
2301
2094
2448
2089
Jun13
2053
2058
2247
1949
Sep13
2102
2075
2238
2017
2531
2459
2000
2118
1984
1985
2200
2314
2066
16329
15296
15760
15363
15212
15043
14734
13943
14141
2523
2397
2485
2435
2401
2368
2360
2238
2308
51
Table 24: Lead summary data
unit
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
China imports
kt
182.1
227.9
230.5
234.6
207.3
Australia
kt
15.0
14.1
25.3
24.8
11.1
Peru
kt
22.7
19.6
31.8
41.0
30.9
Russia
kt
23.2
33.4
23.1
16.9
30.6
USA
kt
3.4
39.9
38.4
13.2
12.1
Mexico
kt
7.6
8.4
5.7
9.8
15.8
other
kt
110.2
112.5
106.2
128.9
106.8
Refined production
kt
1144
1159
1224
900
1143
World stocks
kt
569
609
581
634
614
weeks of stocks
weeks
2.9
3.1
2.9
3.5
3.1
Australian exports to
kt
24.0
21.8
33.3
15.3
26.0
China
value
AUDmn 46.1
66.3
88.1
40.9
47.3
Sources: Bloomberg, World Metals Statistics, International Lead and Zinc Study Group.
52
Sep-12
327.0
32.4
57.8
42.6
37.0
16.1
141.1
1296
533
2.5
Dec-12
285.0
21.5
30.6
29.0
67.5
13.5
122.9
1307
627
2.9
Mar-13
198.8
14.9
31.3
21.1
28.0
13.9
89.6
1070
680
3.4
Jun-13
168.0
10.7
6.7
27.0
0.0
7.2
116.5
1200
600
2.9
Sep-13
na
na
na
na
na
na
na
1148
na
na
23.8
33.1
17.6
28.0
17.5
48.4
92.1
27.4
59.5
39.3
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