By Walter de Wet
China’s Q3:09 GDP figure is due for release tomorrow; the spotlight is now on the strength and sustainability of a Chinese economic recovery. China is the single biggest base metal consumer (~25- 30%), posting large imports of thermal coal, PGM and many other metals and bulk commodities.

Expectations are that China’s economy has grown at 9% y/y in Q3:09, up from 7.9% y/y in Q2:09 and 6.1% Q1:09. Conversely, the US economy has contracted 3.8% y/y in Q2:09. Electricity production in China and the US: Electricity is a good indicator of underlying real economic activity.

The adjacent graphs show two themes: Firstly, YTD, the growth trend is indeed improving. Using China’s electricity production as indicator, Chinese economic growth has picked up substantially since Jan 2009, signalling that the economic growth in Q3 could be much higher than in Q2:09 and Q1:09.

The same trend is evident in the US, where electricity production is now much higher than at the start of 2009. Secondly, comparing Electricity data for both countries on a y/y basis, electricity figures cast some doubt over the strength of the US economy — especially for the primary and secondary sectors which are electricity-intensive.

Electricity figures remain well below levels seen since 2004. It shows that while the growth rate is positive, at an absolute level, the recovery in the US still has long legs. However, China’s electricity figures are signalling growth, even at an absolute level.

Electricity figures also support a rise in demand for commodities YTD. This would be consistent with higher prices. However, m/m growth in electricity figures is slowing, which is another indication that especially commodities with large exposure to China are unlikely to see such demand-side support for prices as they did in H1:09.

Courtesy: Commodities Research, Standard Bank

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