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Tue, Aug 31, 2004 - Page 12 News List

Growth quells slowdown fears

CHINA'S ECONOMY Strong demand for commodities is allaying concerns that lending curbs might spark a rapid economic cooldown

BLOOMBERG

Chinese demand for commodities, including coal and steel, pushed global shipping prices to a four-month high, signaling that government-imposed lending limits aren't abruptly slowing China's economy.

The Baltic Dry Index, which measures the cost of shipping coal, iron ore and other raw materials globally, has risen 61 percent since June 22. China will account for 36 percent of this year's worldwide demand for iron ore, the main raw ingredient in steel, according to Brazil's Cia Vale do Rio Doce, the world's largest iron ore producer.

Rising demand allays concerns about a rapid decline in China's growth, which slowed in the April-to-June period for a second straight quarter following government curbs on lending to industries including steel and real estate. Economies from South Korea to the US are counting on exports to China to sustain growth amid rising oil prices.

"The government measures have been effective in guiding the economy to a more moderate growth level," said Tai Hui, an economist at Standard Chartered Bank in Hong Kong. "There's still a great demand for China to grow in terms of infrastructure and construction work, so it shouldn't surprise anyone that China is still sucking in huge amounts of commodities and energy."

China's economy grew 9.6 percent in the second quarter from a year earlier, slowing from a gain of 9.8 percent in the first three months of the year. The economy has grown 7 percent or more each year since 1991.

Investment in fixed assets including factories and roads accelerated last month, and Asia's second-largest economy after Japan imported 34 percent more goods than a year earlier.

In the first half of 2004, China's imports of iron ore climbed 35 percent, and imports of steel sheets and plates grew 64 percent.

"Growth in demand for commodities remains strong, and we certainly see China as being a sustainable consumer of raw materials in the medium to long term," Charles "Chip" Goodyear, chief executive of London-based BHP Billiton Plc, the world's largest mining company, told investors on Aug. 18. BHP Billiton said profit for January-June more than doubled as Chinese demand boosted commodity prices.

The Baltic Dry Index rose to 4224 on Aug. 25, its highest level since April 27, after dropping in April and May. The rebound has been stoked by Chinese demand for commodities such as steel, said Nicolai Hansteen, an analyst at Oslo-based shipbroker Lorentzen & Stemoco AS.

"The shipping market is driven by China's ferocious demand for steel," Hansteen said.

"China will have a huge demand not only for imports of steel products, but also for raw commodities used in the steel industry."

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