Macro Environment China’s economy grew much slower-than-expected in August, weighed down by a protracted property crisis and poor domestic consumption amid consumers’ worries about job security, adding urgency for policy makers to roll out more support. In response to economic challenges, China’s Central Bank announced its most robust suite of economic stimulus measures since the on-set of the Covid pandemic.
These measures include a 50 basis point cut to the Required Reserve Ratio for banks, along with a 0.5 percentage point reduction in interest rates on existing mortgages.
Additionally, China’s leaders have vowed to intensify fiscal support. Energy Electricity production in China surged in August, increasing by 5.8 percent year-on-year to 907.42 billion kilowatt-hours. Manufacturing China’s crude steel output continued its downtrend in August, reaching 77.9 million tonnes, with a year-on-year decline of 10.4 percent. Imports China’s corn imports fell sharply to 0.43 million tonnes in August, down 64.0 percent from the same period last year. Exports In 2024, China’s steel exports are projected to hit an eight-year high, driven by increased shipments to European countries and Southeast Asia as domestic demand wanes.
MACRO ENVIRONMENT
• Amidst a weak manufacturing sector, industrial production in China grew by 4.5 percent year-on-year in August, falling short of the 4.8 percent forecast by a Reuters poll.
• Missing market expectations, retail sales rose by 2.1 percent year-on-year in August, slowing from a 2.7 percent increase in July. • In response to the economic challenges, China’s central bank announced its most robust suite of economic stimulus measures since the onset of the Covid pandemic. These measures include a 50 basis point cut to the Required Reserve Ratio for banks, along with a 0.5 percentage point reduction in interest rates on existing mortgages. Additionally, China’s leaders have vowed to intensify fiscal support.
• Total exports from China rose by 8.7 percent year-on-year in August, reaching USD 308.65 billion, the highest growth rate since March 2023.
• In contrast, imports saw only a 0.5 percent year-on-year increase in August, totaling USD 217.63 billion.
• Exceeding market expectations, China’s trade surplus surged to USD 91.02 billion in August, up from USD 67.81 billion in the same period last year.
PRICE ENVIRONMENT
- China’s Producer Price Index (PPI) fell by 1.8 percent year-over-year in August, marking the steepest decline in four months.
• This figure eased from a 0.8 percent decline in July, falling short of a Reuters poll forecast that anticipated a 1.4 percent monthly drop.
• From January to August, producer prices for industrial products decreased by an average of 1.9 percent compared to the same period last year, while purchasing prices for industrial producers experienced a significant annual decline of 21.0 percent. • In August, China’s Consumer Price Index (CPI) rose by 0.6 percent year-on-year, compared to a 0.5 percent increase in July, but it fell short of the 0.7 percent rise projected by a Reuters poll.
• Over the previous eight months, consumer index averaged an increase of 0.2 percent compared to the same period last year, with urban prices rising by 0.3 percent and rural prices increasing by 0.4 percent.
• China’s core inflation, which excludes food and energy prices, rose by just 0.3 percent year-on-year in August, the slowest growth in over three years, down from a 0.4 percent increase in July.
MANUFACTURING
• China’s crude steel output continued its downtrend in August, reaching 77.9 million tonnes, with a year-on-year decline of 10.4 percent. The average daily output for August was 2.51 million tonnes, down from 2.68 million tonnes in July and 2.79 million tonnes in August 2023.
• Over the first eight months of the year, China produced 691.41 million tonnes of crude steel, reflecting a 3.3 percent decrease from the same period last year, largely due to weak domestic demand and falling steel prices.
• Finished steel prices also ended August lower, as spot sales struggled due to subdued consumption from end-users, impacted by high temperatures and frequent heavy rains across many regions of the country.
• The official Manufacturing Purchasing Manager’s Index (PMI) declined to 49.1 in August, down from 49.4 in July.
• The sub-index for total new orders fell to 48.9, down 0.4 percentage points from the previous month.
• In August, PMI marked its sixth consecutive decline and remained below the 50-point threshold for the fourth month in a row, as factory gate prices tumbled to their lowest levels in fourteen months.
• China‘s real estate investment fell by 10.2 percent year-on-year in August, maintaining the same rate of decline observed in the previous month.
• Property sales by floor area dropped by 18.7 percent over the trailing eight months, compared to a 19.0 percent decrease in the first half of the year.
• Growth in new construction by floor area experienced a significant decline of 23.7 percent annually in July, following a 23.3 percent drop in the first seven months of 2024.
• New home prices also fell sharply, marking the fastest decline in over nine years, down 5.3 percent from a year earlier. On a monthly basis, prices fell by 0.7 percent, extending a streak of fourteen consecutive months of decline.
• In August, the total value added by industrial enterprises above a designated size rose by 4.5 percent compared to the previous year.
• By sector, the value added in mining grew by 3.7 percent year-on-year, while manufacturing saw a growth of 4.3 percent from the same period last year.
ENERGY
• Electricity production in China surged in August, increasing by 5.8 percent year-on-year to 907.42 billion kilowatt-hours. The growth rate for August was 0.4 percentage points higher than the previous month.
• Last month, all segments returned to a growth trajectory. Thermal power rebounded from a three-month decline, while hydro power experienced a further deceleration in its monthly growth pace.
• From January to August, total power generation reached 62.02 trillion kilowatt-hours, reflecting a 6.1 percent increase compared to the same period last year.
• In August, hydro power generation rose by 10.7 percent annually, reaching 163.5 billion kilowatt-hours, although this marked a slowdown from July’s impressive 36.2 percent increase.
• Over the combined eight months, hydro power generation expanded by 22.3 percent annually to 882.25 billion kilowatt-hours.
• The contribution of renewable energy sources continued to rise, with solar output surging by 21.7 percent year-on-year, while nuclear generation increased by 4.9 percent annually.
• In August, China’s thermal power generation rebounded to 614.9 terawatt-hours, marking a 3.7 percent increase year-on-year after three months of decline. • Monthly growth was more modest, with a 7.0 percent increase compared to July.
• For the first eight months of 2024, thermal generation’s annual growth lagged behind the overall electricity output increase, reflecting the surge in clean energy sources. Despite a decline in coal’s share of the energy mix, it remains a key component of China’s energy system, supported by the commissioning of 24 gigawatts of new thermal capacity.
• Wind power generation faced challenges, producing 50.24 terawatt-hours in August—a 24.0 percent drop from July and extending a four-month downward trend.
• However, year-on-year, wind power output increased by 6.6 percent.
• Installed wind capacity rose by 38.0 gigawatts in the first eight months, showing a 6.0 percent growth compared to the earlier part of the year.
CRUDE OIL/NATURAL GAS
• China imported 49.10 million tonnes of crude oil in August, equivalent to 11.56 million barrels per day, marking a strong rebound and reaching the highest monthly pace in a year.
• This figure represents a significant increase compared to the weakest monthly record in nearly two years, which was 9.97 million barrels per day reported in July. In contrast, Russian crude oil arrivals dropped to their lowest level since April.
• For the first eight months of the year, crude oil imports were 3.1 percent lower than the same period last year, totalling 379.0 million tonnes.
• China’s natural gas imports surged by 9.1 percent year-on-year in August, reaching 11.76 million tonnes, continuing a bullish trend that has persisted since February 2023.
• From January to August, natural gas imports totalled 87.13 million tonnes, an increase of 12.3 percent from a year ago.
• Domestic natural gas production reached 20.0 billion cubic meters, reflecting a sharp rise of 9.4 percent compared to the previous year.
IRON ORE
• Despite noticeable weakness in steel production, China’s iron ore seaborne volumes reached 101.39 million tonnes in August, representing a 1.4 percent decline from July’s 102.81 million tonnes.
• In the first eight months of the year, China’s iron ore imports increased by 5.2 percent year-on-year, totalling 815.0 million tonnes.
• Sentiment in the world’s largest steel market has been affected by panic selling triggered by new government regulations on steel quality. This situation has led local steelmakers to reduce production, consequently diminishing their demand for raw materials.
• In August, China’s iron ore output rebounded by 4.9 percent month-on-month, reaching 73.6 million tonnes, following a steep decline of 26.4 percent in July.
• However, compared to last year, August’s iron ore output continued a bearish trend, decreasing by 14.7 percent after an 18.1 percent drop in July.
• For the January to August period, China extracted a total of 696.50 million tonnes of crude iron, marking a 4.1 percent increase year-on-year.
COAL
• China’s total coal imports reached a seasonal record of 45.84 million tonnes in August, marking a 3.41 percent increase year-on-year, though it slipped slightly from July’s seven-month high of 46.21 million tonnes.
• From January to August, coal imports totalled 342.0 million tonnes, reflecting an 11.8 percent increase compared to 306.0 million tonnes during the same period in 2023.
• Imports from Russia decreased by 13.0 percent year-on-year in August, totalling 8.7 million tonnes. Similarly, Australian coal exports to China fell by 7.0 percent year-to-date, amounting to 6.19 million tonnes.
• China continues to expand its coal-fired power capacity rapidly. Recent data indicates that 173.5 gigawatts of new coal plants are under construction.
• Domestically, coal production saw a year-on-year increase of 2.8 percent, reaching 396.55 million tonnes in August, or an average of 12.59 million tonnes per day. Over the past eight months, China mined 3.05 billion tonnes of coal, remaining consistent with last year’s figure.
• China produced about 40.89 million tonnes of metallurgical coke in August, representing a decrease of 2.1 percent year-on-year and 1.6 percent month-on-month.
GRAINS
• In August, China imported a record 12.14 million tonnes of soybeans, marking a significant increase of 29.0 percent compared to 9.43 million tonnes imported in August 2023.
• This figure represents a 23.2 percent rise from the previous month, reaching the highest level in 14 months as traders capitalized on lower prices.
• For the first eight months, Chinese customs cleared a total of 70.48 million tonnes, up 2.8 percent year-on-year. China plans to increase oilseed processing to 99.0 million tonnes for 2024/25, driven by rising feed demand, lower soybean meal prices, and competitive export pricing, which is expected to further affect market dynamics.
• In contrast, China’s corn imports fell sharply to 0.43 million tonnes in August, down 64.0 percent from the same period last year.
• Wheat imports also declined to 0.41 million tonnes in August, which is half the amount imported in August 2023. However, total wheat imports for 2024 have exceeded last year’s levels.
• Chinese customs cleared 2.21 million tonnes of grains, excluding soybeans, in August, representing an 8.1 percent decrease compared to the previous year.
MINORS (EXPORTS)
• In August, China’s fertilizer exports rose to 4.04 million tonnes, an increase of 18.6 percent compared to the same month last year.
• For the first eight months of the year, China exported a total of 19.7 million tonnes, reflecting a 4.0 percent increase year-on-year and continuing the upward trend observed in previous months.
• Despite this overall growth, China’s urea exports have faced significant challenges. Urea exports are anticipated to remain below 2.0 million tonnes in the third quarter, a stark contrast to the 4.3 million tonnes exported in the same quarter the previous year.
MINORS (EXPORTS) SEPTEMBER 2024
• Ending a two-month decline, China’s total finished steel exports rebounded in August, reaching 9.51 million tonnes, or 14.7 percent higher year-on-year.
• From January to August, cumulative steel exports amounted to 70.58 million tonnes, reflecting a year-on-year increase of 20.6 percent.
• In 2024, China’s steel exports are projected to hit an eight-year high, driven by increased shipments to European countries and Southeast Asia as domestic demand wanes.
MINORS (IMPORTS)
• In August, China’s steel imports totalled 0.51 million tonnes, showing a slight increase of 0.8 percent from July. However, this figure is 20.5 percent lower than the 0.64 million tonnes imported in August 2023.
• Looking at the broader trend from January to August, steel imports surged to 70.58 million tonnes, representing a substantial year-over-year increase of 20.6 percent. This marks the highest import level since 2016. Conversely, apparent consumption of crude steel experienced a decline of 3.5 percent, dropping to 75.69 million tonnes.
• Steel production in August fell by 6.1 percent compared to July, reaching 77.92 million tonnes. This downturn was driven by a combination of lower demand and shrinking profit margins for steel manufacturers.
• In August, China imported 5.05 million cubic meters (CBM) of timber.
• This figure represents a year-over-year increase of 4.2 percent. • From January to August, total timber and log imports reached 43.21 million CBM, reflecting a decline of 3.5 percent compared to the same period last year.
Marex Media