SHANGHAI, Jul. 14 -- China ramped up production of a range of commodities in June and hoisted the output of refined copper, nickel, aluminium, iron ore and steel to record highs, as returning power supplies allowed plants to run their smelters nearly at full-steam.
Weeks of heavy rain across China unleashed crucial hydropower supplies and higher tariffs finally encouraged utilities to restart idled generators, which pushed the country's power generation to a record high of 396.8 billion kilowatt hours.
"The numbers were surprisingly strong. I guess it is a positive and a negative story in the sense that its shows that the economy is stronger than expected," said Peter Hickson, head of global commodity research at UBS Bank in Hong Kong.
"But on the other hand, the robust production is going to increase import substitution, especially for aluminium and iron ore."
China, the world's second-largest economy, is the world's top producer of aluminium, lead, zinc and tin -- and high domestic production typically dampens its import appetite.
Official statistics have showed that the strong metals production over the past few months was beginning to impinge on imports. China's June shipments of aluminium and iron ore fell by 14 percent and 4.3 percent respectively from a month ago.
Looking ahead, analysts said the frenetic pace of copper production could slow over the coming months, although output of aluminium and nickel is set to rise as new plants come onstream.
Fu Bin, an analyst at Jinrui Futures, a subsidiary of top producer Jiangxi Copper, said tightening scrap supply in China could cut feedstock to small- and medium-scaled producers, and therefore their output, in July.
"Their output would all depend on scrap supply," he added.
Data released on Wednesday also showed China's economy grew at a faster-than-expected pace of 9.5 percent in the second quarter from a year earlier, easing fears of a hard landing and strengthening Beijing's resolve to fight persistently high inflation.
EASING POWER WOES
After months of drought, the torrential rainfalls in central and southern China last month finally helped crucial hydro power, which saw supplies jump nearly 30 percent from a month ago to 66.41 billion kilowatt hours (kwh). Output is also up 12.5 percent from a year ago.
Total power generation rose 5.1 percent from a month ago to a record high of 396.8 billion kwh, the National Bureau of Statistics said on Wednesday.
Easing power supplies played a big role in boosting metals and steel production.
"There were some power cuts but it wasn't very serious and it didn't have a big impact on operations," said a steel trader.
Despite earlier fears of China facing a summer power shortage of as much as 40 gigawatts -- more than the total generation capacity of Argentina -- analysts said there were signs that the worst could be over.
"The government's move to raise tariffs has helped to raise power output. The power shortage may not necessarily worsen in the peak summer months, especially if economic activity starts to slow," said Xie Jun, a power analyst at GF Securities.
METALS, STEEL
Refined copper output rose 8.7 percent on the month to 477,000 tonnes in June, a rebound from a 3.3 percent monthly fall in May, data from the National Bureau of Statistics showed. The output rose 12 percent from June 2010 and 1.5 percent from the previous record seen in March 2011.
In the first half of 2011, refined copper production rose 13.9 percent on the year to 2.644 million tonnes.
Primary aluminium production rose 3.6 percent on the month to a fourth consecutive record at 1.591 million tonnes in June, bringing total output in the first half to 8.643 million tonnes.
Industry sources said many smelters had started production with new capacity during the period from March to May 2011 and were expected to gradually increase production through August.
On steel, China's daily crude steel output hit a record 1.998 million tonnes in June, up 2.8 percent from May. Full-month production was 59.93 million tonnes.
Analysts said the steel mills have raced to increase output amid strong demand and that daily output was expected to cling to near record high levels in July as the pace of building 10 million affordable housing units accelerates.
Separately, data also showed China's implied oil demand rose 1.1 percent in June from a year earlier, the slowest growth in more than two years, as oil plants underwent heavy maintenance amid poor refining margins and Beijing's tightening policy cut into oil use.
However, analysts said real oil use may not be as bearish as the figures show as oil firms may have been drawing on oil inventories, which were not reported by the government, to ease the pain of negative refining margins.
Source:smm