China PMI shows hoarding and shortages in May
“There are still signs of a supply shortage in the survey breakdown, with delivery times stretching even further as companies have had to dig deeper into their raw material inventories,” said Julian Evans-Pritchard , Chinese economist at Capital Economics.
Commodity prices are significantly higher from a year ago, with iron ore and copper hitting record highs this year and iron ore surging more than US $ 230 per tonne at the start of the month last as demand from reopening economies – including China – drove up the prices of metals used in everything. from construction to electric vehicles.
While Chinese producer prices rose at the fastest pace in more than three years in April, the Chinese government has already started trying to curb hot commodity prices.
He threatened to crack down on domestic traders and companies involved in speculation, collusion or hoarding, under the watchful eye of the Chinese state planner, the National Development and Reform Commission (NDRC).
The NDRC said regulators would strengthen joint supervision of commodity futures and the spot market, where there would be “zero tolerance” for illegal activity. It would also increase inspections and investigations of abnormal transactions.
Regulators “will resolutely investigate and punish violations of the law, such as entering into agreements to establish monopolies, disseminating false information, raising prices and hoarding,” the NDRC warned.
The NDRC also said it will encourage companies to boost domestic iron ore exploration, increase production, expand its import sources and explore ore resources abroad. He also wants to slow down steel production.
The strength of currency
A stronger currency benefits Chinese importers of raw materials, which are usually priced in US dollars, and also risks making Chinese products more expensive in overseas markets.
“The Chinese manufacturing PMI yesterday suggests that export orders are under pressure with the export orders sub-index at 48.3 from 50.4, while overall new orders also fell to 51, 3 to 52.0, “said Ray Attrill, head of foreign exchange strategy at National Australia.
The Chinese currency traded at 6.37 yuan per US dollar on Tuesday afternoon, broadly stable that day, after hitting a new three-year high of 6.36 per dollar on Monday.
Chinese officials are uncomfortable with the level of the currency, according to Mitul Kotecha of TD Securities, who highlighted the strength of the yuan against the US dollar and on a trade-weighted basis.
“This has clearly caused some discomfort among officials, as evidenced by the ever weaker yuan fixings in recent weeks; 16 of the last 20 bindings have been weaker than market expectations.
On Monday, officials took the most important step yet: Chinese banks were ordered to hold more foreign currency as reserves at the central bank, the first time they were ordered to hold it. do since 2007.
Banks will need to hold 7 percent of foreign currency in reserve from mid-June, up from 5 percent, freezing about $ 20 billion of $ 1 trillion of foreign exchange.
“We expect official resistance to pressure to appreciate the yuan to intensify. Having said that, we do not expect a return to a depreciating currency trajectory but rather stability, ”Kotecha said. “We believe that China wants to continue to attract inflows of foreign bonds without wanting to encourage outflows.”
-With Michael Smith