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China Posts Record Resource Production

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12/11/2012 | 07:45am CET

--China's processing of resources rose in November, indicating economic recovery

--Copper, crude-oil output records reinforce other positive economic indicators

--Government stimulus spending is driving economic recovery, analysts say

--Some analysts caution that increased output may not mean increased consumption

BEIJING--China ramped up production of industrial materials including copper and oil products last month, suggesting smelters and refiners are gaining confidence that the world's second-largest economy is on a recovery course.

Copper output set a record in data issued Tuesday, reinforcing an optimistic outlook based on record crude-oil throughput, announced Sunday. The data also support indications of an uptick in industrial demand as measured by China's official Purchasing Managers Index, a measure of nationwide manufacturing activity, which rose to 50.6 in November from 50.2 in October, marking its third straight monthly gain--and second consecutive month in expansionary territory.

Copper production rose to 531,000 metric tons in November, up 2.1% on month and 11.6% on year, data from the National Bureau of Statistics showed Tuesday. This followed data from the bureau that showed Chinese refiners processed 10.17 million barrels a day of crude oil last month, up 4.2% on month and 9.1% on year.

The PMI data indicate a recovery in the industrial sector, which Deutsche Bank analysts Daniel Brebner and Xiao Fu in a research note said that they expect "will prove supportive for parts of the industrial metals complex."

Government stimulus for infrastructure investment boosted industrial activity in China, as shown in industrial output data from the statistics bureau, also issued Sunday, with the reading rising by 10.1% on year in November, exceeding the median 9.8% forecast in a Dow Jones Newswires poll of economists. This was the fastest pace of expansion since March.

The real estate sector also demonstrated rising confidence in terms of both construction and sales of property units, as home buyers took property development investment up 28.5% on year while residential property sales rose 42.9%.

Beijing's unveiling of a trillion-yuan ($160 billion) package of infrastructure stimulus projects in September provided the catalyst for confidence among resource producers, stabilizing steel and copper prices and encouraging mills to restock, analysts said.

"There's some expectation of more infrastructure stimulus later this year or early next year," Coal Network steel analyst Dai Bing said, adding that the government isn't likely to let the economy return to the doldrums seen earlier this year.

Refineries will likely process more crude in the fourth quarter, expanding on a recovery that began in September, when Chinese refiners set the previous throughput record, as major refineries increased output to capitalize on higher margins after the government raised fuel prices.

Despite the positive outlook suggested by the data, some analysts cautioned that the figures may not actually reflect stronger demand. "The reason [for record crude-oil throughput] is simple: there is just very little refinery maintenance," said Li Li, an analyst at Chinese energy consultancy ICIS C1 Energy.

In order for the market to really know whether consumption is the reason for record throughput in November, it would need data on Chinese oil inventories, Ms. Li said. China excludes strategic oil inventories from data that it issues every second week, which indicates only the on-month change in stockpile levels.

At least it appears that crude oil refined in the country is staying there--whether it is consumed or stockpiled. China continued to be a net importer of oil products in November, shipping in 1.35 million tons more than it shipped out, according to customs data.

In another sign of rising industrial confidence, China's largest listed steelmaker, Baoshan Iron & Steel Co. (600019.SH) last month raised its December prices for key steel products, ending five months of flat or reduced levels.

Baoshan's products are largely used for appliance, automotive and other manufacturing purposes, and the hikes suggest that the non-construction steel-consuming sector is seeing rising demand. Baoshan had cut prices in July through September, but left them unchanged for October and November.

China's crude-steel output last month rose 0.5% from October on a daily average basis, the government said Tuesday.

China's electricity output grew at its fastest pace of the year in November, rising 7.9% compared with a year earlier. The country's power output stopped rising in June, holding steady on year for the first time in three years, reflecting China's slowing economy at the time. The pace of growth has gradually picked up since then.

Write to Chuin-Wei Yap at chuin-wei.yap@dowjones.com and Wayne Ma and wayne.ma@dowjones.com.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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