China's March commodities output jump on demand revival hopes

China's commodity output surged in March, with steel hitting a record high of 61.2 million tonnes, while copper and aluminium also galloped to near record levels as producers bet on a demand revival, prompting some analysts to warn of a supply surplus.
These numbers were at odds with a grim picture painted by China's first-quarter gross domestic production data that showed the economy grew at a lower-than-expected 8.1 percent, the fifth successive quarter of slowing annual growth and its weakest pace of expansion in nearly three years. Investors mostly shrugged off the disappointing GDP data, with oil and copper prices only slipping slightly, as they interpreted the weak growth as a catalyst for more monetary easing moves by Beijing.
Earlier data which showed China's March bank-lending topping 1 trillion yuan for the first time since January 2011, coming in about 25 percent ahead of expectations, also led investors to retain a healthy amount of risk appetite. Still, analysts warned that producers could be getting ahead of themselves, as evidence showed that demand from end-users was still weak and that the seasonal recovery has been sluggish.
With imports of a host of bulk commodities also staying at lofty levels in March, there is growing risk that the market could be oversupplied in the coming months. "We expected a recovery in steel production, but didn't expect it would grow so much," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.
"There will be a correction eventually. Now it's only the matter of when the bubble will burst or how it will burst amid rising risks," Liu added. A steady uptick in Chinese steel prices, up about 3 percent in the first quarter and now hovering at 4,370 yuan ($690) a tonne, has also prompted steel mills to lift output, in turn driving up iron ore imports and prices.
Crude steel production was up 10 percent from February and 3.9 percent from a year earlier, data from the National Bureau of Statistics showed on Friday. Chinese metal miners also sped up output ahead of the peak demand season and April's figures are likely to stay strong as large producers have no plans to cut production.
Refined copper output in March was up 16.7 percent from a month earlier to 510,000 tonnes, while primary aluminium production rose 2 percent from a month earlier to 1.568 million tonnes in March, the highest level since a record 1.59 million tonnes in June 2011.
"I'm concerned about aluminium and steel producers as the output levels are not in line with demand. This is particularly so in aluminium, where production and stockpiles are both very high," said Judy Zhu, an analyst with Standard Chartered Bank. Power output was more in sync with the broader economy, with total generation in March rising just 7.2 percent from a year ago, the slowest pace for a non-holiday month for a year. Similarly, oil processed by refineries in China, the world's No 2 consumer, eased about 3 percent from a year ago to hit a five-month low of 9.04 million barrels per day. Implied oil demand was also at its lowest in five months on a daily basis.
Although the GDP numbers missed forecasts, they were still above the government's full-year growth target of 7.5 percent and point to a soft economic landing. That means Beijing would not feel pressured to roll out any dramatic policy responses, although it would likely make small tweaks to boost domestic consumption.
Traders and analysts reckon the government would introduce more subsidies for white goods, such as air-conditioners and washing machines, by around the middle of the year, but sees significant policy loosening for the property sector as unlikely in the near term.
The real estate sector accounted about 13 percent of China's gross domestic product in 2011 and it directly affects more than 40 industries, making Beijing's two year-long campaign to curb rampant property speculation one that has been felt across the economic spectrum.
Real estate investment rose 23.5 percent in the first quarter of 2012 from a year earlier, slowing from an annual growth of 27.8 percent in the first two months, while floor space newly started for construction inched up just 0.3 percent from year ago - the lowest in at least seven months.