More evidence of slowing demand from China emerged this morning with manufacturing activity dropping to an 8 month low. The HSBC/ Markit flash purchasing managers index (PMI) fell to 48.1 in Mar, down from 48.5 in Feb and against expectations of a bounce in activity to 48.7. Copper futures initially fell on the news before recovery to around $6,490 per tonne on hopes that the recent flurry of bad data from China would spur the authorities into action and introduce further stimulus measures.
However, Bloomberg reports comments from Finance Minister Lou Jiwei suggesting China will focus on quality of growth this year, which means no shotgun stimulus program. Lou added that China will pay more attention to the environment and won’t use large-scale fiscal stimulus to spur investment in order to reduce overcapacity. Although the Chinese authorities have set a 7.5% growth target for 2014, China’s premier has alluded to a level of flexibility – research from China’s National Development and Reform Commission sees growth at 7% in 2014.
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Nevertheless, concerns about copper demand from China may be overstated according to research from Barclay’s. Demand for copper from the power sector (more than 40% of China’s copper consumption) is expected to rise in 2014, potentially offsetting lower growth in property and infrastructure. According to Barclay’s China’s grid companies invested 40 billion yuan (about $6.4 billion) in the first two months of the year, up 22% year-over-year with China’s main two providers both expecting to invest 13% more than last year.
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Chart: Chinese manufacturing activity