Economic Data from China Suggest Economy and Metals Demand is Slowing

Economic data suggest that China's economy is cooling, but demand for metals has been red-hot lately. Should China's economy continue to slow, demand for metals could follow suit.

"...analysts say the PMI survey findings suggest that pent-up COVID demand may have peaked and China's robust economic rebound from the crisis is starting to moderate." Reuters, July 5, 2021

Summary: Caixin Global releases two different Purchasing Managers Indices (PMI) every month, one for China's services sector, the other for China's manufacturing sector. Both indices provide an overall view of their respective sectors and the Chinese economy as a whole. A reading below 50.0 implies contraction in the sector, above 50.0 implies expansion. AEGIS notes that the PMI is a survey of purchasing managers, likely the first managers in a company to act if the company expects to increase output. It's therefore often understood as a leading, or predictive, indicator. The most recent Caixin Manufacturers PMI, released Thursday July 1, was pegged at 51.3, down from 52.0 the prior month. It's most recent peak was November 2020 at 54.9. On a similar note, the most recent Caixin Services PMI, released Monday July 4, was pegged at 50.3, down from 55.0 the month prior (14 month low). It's most recent peak was June 2020 at 58.4.

AEGIS Thoughts & Strategies: Although we shouldn't make extreme judgments from only two economic indices, both Caixin PMI Indices suggest that China's economy has been cooling since at least last fall. Contrarily, China's appetite for metals has been strong this year, suggesting the manufacturing and services sectors are buoying demand. However, renewed COVID fears and the potential lockdowns are keeping a lid on prices. A boost in demand, perhaps related to fewer COVID disruptions, may be needed to move prices higher.