China’s urban fixed-asset investment rose 25.6 percent to 4.0264 trillion yuan (575.2 billion U.S. dollars) in the first five months of 2008 compared to the same period a year earlier, the National Bureau of Statistics (NBS) said here Tuesday.

The growth figure was 0.3 percentage points lower from the same period last year, and 0.1 percentage points lower than the Jan-April period this year.

“The growth was broadly in line with market expectations and reflected the government’s efforts to prevent the economy from getting overheated,” said Hu Yanni, a CITIC Securities Research analyst.

Hu said the deadly May 12 quake in Sichuan Province would have a short-term negative impact on fixed-asset investment, while speeding up the investment pace in the long run with the surge in demand on infrastructure rebuilding and temporary settlement construction in the affected regions.

Li Daokui, a Tsinghua University economist, said the investment was not apparently overheated, but the government should be cautious as it was likely to rebound in the second half to add to inflationary pressures.

The NBS reported earlier this month that inflation, as measured by the consumer price index (CPI), was up 7.7 percent in May over the same month last year. In April, it rose 8.5 percent after a 12-year high of 8.7 percent in February.

Meanwhile, there were worries the CPI would accelerate because of rising factory-gate prices, analysts said.

The producer price index (PPI), which measures the value of finished products when they leave the factory, rose 8.2 percent inMay over the same month last year. The rise was 0.1 percentage points higher than April’s 8.1 percent.

Investment in state-owned and state-controlled enterprises was 1.6397 trillion yuan, up 18 percent. Investment in the real estate sector grew 31.9 percent to 951.9 billion yuan, the NBS said.

Primary industry (farming, fishing, forestry and the like) continued to grow the fastest among industrial sectors, expanding 66.1 percent during the first five months. That compared with secondary and tertiary industries, whose investment rose 25.6 percent and 25 percent, respectively.

Zhang Xiaojing, a Chinese Academy of Social Sciences analyst, said the 71-percent surge in primary industry investment was a positive sign. It showed the government’s move to shore up agricultural development was effective.

Investment by the central government expanded 18.5 percent year-on-year to 369.9 billion yuan and that by local governments was up 26.4 percent to 3.6566 trillion yuan.

The first five months saw the commencement of 84,368 projects, 9,667 more than the same period last year. Planned investment in these new projects was 2.721 trillion yuan, down 2.5 percent.

Fixed-asset investment is a main gauge of spending on new productive capacity and has been rising rapidly, fuelled by the ample liquidity in the country.

The government has taken a series of measures to drain liquidity as it tries to maintain a more sustainable economic growth and curb inflation.

In its latest effort to rein in credit growth, the central bank announced it would raise the reserve-requirement ratio for commercial banks by 1.0 percentage point in two stages this month to a new high of 17.5 percent.
　

China’s inflation eases but prices to remain high（2008/06/17）
(Xinhua) — China’s inflation eased in May, a welcome trend that analysts said would continue for the rest of the year as food prices had started falling after surging over the past year.

The consumer price index (CPI), the main gauge of inflation, rose 7.7 percent last month, marking its first significant drop since last year, the National Bureau of Statistics (NBS) said on Thursday.

The CPI rose 8.5 percent in April, up from 8.3 in March and down from the 12-year high of 8.7 percent in February.

However, while inflation was decelerating, prices would remain high this year, and the situation might trigger further tightening and price reforms involving energy and resources, said analysts.

CPI TO DROP FURTHER

The CPI would continue to fall for the rest of the year with declining food prices, according to the China International Capital Corp. (CICC).

The rate of increase in food prices, a major driver behind China’s high inflation, dropped 2.2 percentage points to 19.9 percent in May.

As stocks of live pigs and the yield of rape vegetables increased, the trend would likely to continue because of increasing supplies and an expected bumper harvest.

China has since last year introduced a series of incentives, including direct subsidies and government-funded insurance, to boost agricultural production.

Li Huiyong, an analyst with Shenyin Wanguo Securities, said that the devastating earthquake in Sichuan Province on May 12 had a limited impact on food prices as the grain and pork output in the quake regions accounted for a tiny portion of the nation’s total.

Liang Hong, chief China economist with Goldman Sachs, said the easing in May might mark a start of prices softening during the remaining period of the year if the government stuck to tight monetary policies.

The People’s Bank of China (PBOC), the central bank, ordered a full percentage point rise in the reserve requirement ratio on Saturday to enhance liquidity management and tame inflation. The larger-than-expected hike followed 14 increases in the reserve ratio and six interest rate hikes since last year.

This move dashed market hopes the PBOC would relax monetary policy as the economy faced a worrisome slowdown on weaker export growth and the impact of several crises, from the worst blizzards in five decades earlier this year to last month’s 8.0-magnitude quake.

PRICES TO REMAIN HIGH

Inflation also eased because of the high base of comparison from late last year, but absolute prices would continue to climb all through the year, said Hu Yuexiao, an analyst with Shanghai Securities.

“The inflation situation is still very grim and the CPI is set to exceed the government target of 4.8 percent for 2008,” said Hu.

The Bank of China (BOC) forecast the CPI will rise 8.3 percent in the second quarter and 6.8 percent the whole year.

The quake would not change economic fundamentals, but the massive investment required for reconstruction might add new inflationary pressures, the leading commercial bank said.

The acceleration in the producer price index (PPI) in May might lead to a rebound in the CPI sometime later this year as producers pass the higher costs on to consumers, analysts said.

The PPI surged 8.2 percent in May on higher costs of energy, resources and labor, after gaining 8.1 percent in April, the NBS said on Wednesday.

This also deepened worries that higher factory-gate prices might lead to more worrisome broad-based price rises, in contrast to the current structural hikes mainly caused by food.

“The pressures for broad-based price rises are still the biggest risk for the macro-economy,” the central bank said in a report published early the month.

MORE TIGHTENING, PRICE CURBS?

Chinese authorities still needed to stick to a tight monetary policy and raise interest rates “at a proper time,” following the reserve hike on Saturday, to more effectively curb inflation, the BOC said in a research report released on Tuesday.

Rate hikes would help to end negative interest rates to become one of the most effective weapons against inflation, the report noted.

The central bank, however, has refrained from boosting interest rates this year, fearing that could attract more overseas speculative funds after the sharp rate cuts in the United States.

With difficulty in reaching a consensus on rate hikes, the PBOC would use more bill sales, reserve ratio increases and administrative intervention to curb excess liquidity and inflation, the report added.

The trade surplus, although shrinking in recent months, continued to pump a huge amount of liquidity into the banking system, partly blamed for price surges.

To curb inflation and support post-quake building, the National Development and Reform Commission (NDRC), the top economic planning agency, ordered on Wednesday temporary price controls on construction materials such as steel, cement, timber and glass.

Earlier the year, the NDRC ordered similar steps for basic necessities ranging from grain, edible oils, meat, milk and eggs to liquefied petroleum gas.

The decelerating inflation might offer an opportunity for lifting some price controls, including raising fuel prices, in the second half of the year, CICC added.

Price controls have managed to limit the inflationary surge, but they were also widely said to have cut corporate profit growth or even caused losses and made businesses unwilling to increase output, which in turn fanned inflation.

On 6th, Roller Company Ltd of Wuhan Iron and Steel Group was established after reform.
It is said that, with Wugang Group’s support, Roller Company has begun the “11th Five-year” Development Plan. With technology improving project phase one moving on smoothly, the company may reach a high grade roller capacity of 30,000 tons per year by 2009; when the phase two completed, the capacity will be lifted to 60,000 tons to 80,000 tons per year. Till then, the company will have an improved product specification, production scale and quality, giving better services to Wugang and the customers in domestic and abroad.

Precious Metals

Gold declined from the far East into the first hour of the New York session on Thursday, bottoming at $857 before rallying after the noon hour to finish at $868.40/oz., down $11.70. Overnight, gold has fallen off further.

Platinum dropped below $1990 in Hong Kong, then rode a roller coaster through the day, to end at $2013/oz., down $24. Overnight, platinum is slightly higher.

Silver declined gently until the New York open, after which it fell off a cliff, dropping 40 cents in less than an hour, but it too pushed higher after noon to close at $16.44/oz., down 41 cents. Overnight, silver is sharply lower.

The precious metals’ rally lasted all of a day, as they reverted to a downtrend yesterday with a pickup in the dollar.

Gold was also pressured early in the session by oil prices that were off sharply and a stock market that rallied strongly. Even though both reversed trend later in the day, gold was unable to recover.

“The market’s roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar’s morticians,” said Kitco’s Jon Nadler.

The tension between the dangers of letting inflation run vs. raising rates in order to head it off does seem to be ramping up. Observers are watching the dollar’s relationship to the euro as an indication of market sentiment.

At the moment, “The perception … is that there will be higher interest rates,” said Frank McGhee, of Integrated Brokerage Services in Chicago. “Another break in the euro, and you’ll just see the world step on gold.”

Currencies and Economic News

In the currency market, the dollar rallied against the euro. Late Thursday, the euro was trading at $1.5421 vs. $1.5548 on Wednesday.

The buck was supported by better-than-expected retail sales, which boosted expectations for a Fed rate hike.

The Commerce Department reported that retail sales rose by a surprising 1.0% in May, the best increase in six months. Excluding autos, sales rose 1.2%. Economists’ expectations had been for a 0.6% rise in total sales, 0.8% excluding autos.

That report was “serious and raises risks of earlier and more pronounced rate hikes” from the Federal Reserve, wrote Stephen Gallagher, economist for Societe Generale.

The strong retail sales figures were shocking in that they show that consumers are continuing to shop, in the face of the lowest consumer confidence figures in decades. Where they’re getting the money is an open question, although it’s possible that the rebate checks are playing in.

Consumer spending projects to 2% annualized growth for the second quarter, and that would be enough to keep the economy “safely away from negative growth,” Gallagher said.

Traders shrugged off a more distressing report from the Labor Department showing that initial claims for jobless benefits rose by 25,000 last week, to 384,000. Continuing unemployment claims gained 58,000, pushing the number up to 3.14 million for the week ending May 31. That was the highest level since early February 2004.

Meanwhile, the euro weakened after European Central Bank executive board member Juergen Stark said the ECB isn’t planning a “series” of interest-rate hikes beyond July. Earlier remarks by ECB President Trichet had raised hopes of just such a sequence.

Energy

In the energy market Thursday, crude for July delivery recovered from an early selloff to close at $136.74/barrel, up 36 cents.

On the supply front, Nigeria’s president said the country’s state-owned oil company will take over operations in the Ogoni district of southern Nigeria from a Royal Dutch Shell joint venture. President Umaru Yar’Adua made the announcement after talks with French President Nicolas Sarkozy, saying that the move will “calm down” unrest among local residents.

Violence has shut about 20% of Nigeria’s oil production since early 2006.

“The market is so concerned about supply that just about any headline can unnerve traders,” said Phil Flynn, of Alaron Trading. “Once prices began moving higher, there was a massive move to purchase futures.”

Also yesterday, the International Energy Agency said it will attend talks convened by Saudi Arabia on June 22 between producers and oil-consuming countries in an environment of record oil prices.

“We would welcome an opportunity to act collectively to reassure the market about future demand and supply balances in order to change the perception of extended tightness,” said IEA Executive Director Nobuo Tanaka.

Base Metals

The base metals were mostly in the red on Thursday. Copper declined from the pre-dawn hours through to mid-morning, then rallied to finish at $3.6157/lb., down just more than 2 1/3 cents. Nickel prolonged its recent resurgence, rising steadily to push back over the $11 mark, closing at $11.0873/lb., up 61 cents. Zinc declined the whole day, barely coming off its lows to end at $0.8363/lb., down 2 1/2 cents. Aluminum was modestly lower, shedding a bit more than a third of a cent, to $1.3145/lb., while lead’s freefall shows no sign of ending as it dropped another penny and two-thirds, to $0.823/lb.

Copper was weak in the wake of the rising dollar.

“The stronger dollar is impacting prices for copper today,” said Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut. “Copper looks set to continue to fall.”

Traders are taking note of all the talk about the possibility of increased interest rates in order to support the dollar and fight inflation.

“The Fed should be much more willing to act to keep the economy going and prevent it from entering a recession,” Chidley said. “If they go ahead and start raising rates, that’s not going to happen. They run the risk of putting the U.S. into a recession, and that’s going to affect copper very negatively.”

But nickel rose to a three-week high after BHP Billiton, the world’s third-largest producer of the metal, said it will shut down an Australian smelter and refinery that produces about 2% of world supply.

BHP announced that it will rebuild of the Kalgoorlie smelter furnace, reducing nickel sales by 28,000 metric tons.

“It’s a positive driver for the market,” said Adam Rowley, an analyst at Macquarie Group in London. “With the disruption in Australia, nickel is moving to a balance from a surplus.”

The Kalgoorlie closure followed word from Minara Resources, Australia’s second-largest nickel producer, that it was cutting its output forecast by as much as 23%.

Supply may be an ongoing concern, as nickel inventories monitored by the LME have fallen 8.2%, to 47,220 tons, since April 30.

With construction activity down by about 3% this year, demand for carbon steel reinforcing bar is down by 6.5%, yet the rebar sales-price average of $867/ton in May is higher than some analysts had expected. Now, because of still-high scrap prices, Nucor is seeking to raise rebar prices to $920 for deliveries in July from $885 for June deliveries.

Nucor bases its scrap surcharge on shredded scrap, which has risen to $540/gross ton in Chicago. “Higher scrap costs translate into higher steel prices,” says analyst Michael Gambardella at J.P. Morgan Securities. Analyst John Anton at Global Insights suggest that prices (now 76% higher than January 2007) are being supported by high input costs, a weak dollar, low imports and thin inventories. “The increases will stick until inventories begin to rebuild late in the third quarter of 2008, followed by a rapid decline at the end of the year because of weakening demand,” he forecasts.