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China Q3 GDP up 4.9% but ailing aviation, manufacturing sectors to cap fuel demand

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China Q3 GDP up 4.9% but ailing aviation, manufacturing sectors to cap fuel demand

Highlights

Q3 growth falls short of 5.2%-5.5% expansion forecast

Q4 oil demand still expected to fall 250,000 b/d on year

Cyclical winter demand to support gas consumption

Singapore — China has reported an economic growth of 4.9% in the third quarter, paving the way for a recovery in fuel and commodities demand for Asia's biggest energy consumer, but high oil stockpiles and bleak goods and services exports outlook will likely keep industrial fuel consumption and refinery run rates limited.

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The 4.9% growth in Q3, despite slower than the expected 5.2%-5.5%, put China's GDP back to the growth path of 0.7% year on year expansion for the January-September period from the 1.6% contraction in the first half, according to data released by the National Bureau of Statistics, or NBS, on Oct. 19.

China's central bank governor Yi Gang on Oct. 18 expected the country's economy to expand by about 2% in 2020 as it has got the COVID-19 pandemic under control.

"The Chinese economy remains resilient with great potential. Continued recovery is anticipated, which will benefit the global recovery," he said in an online International Banking Seminar of the G30.

The 2% annual growth could suggest a stronger expansion at above 5% in Q4.

"We expect a further, albeit gradual, recovery of the services sector, a steady improvement in retail sales and elevated fixed asset investment growth, especially as it relates to infrastructure," Nomura said in a report Oct. 19.

Rising infrastructure investment would help to boost consumption both for gasoil and steel.

Fixed asset investment in infrastructure strengthened in September, taking year-to-date growth to 0.2% from minus 0.3% in January-August, NBS data showed.

China's property market investment increased by 5.6% year on year over January-September to Yuan 10.5 trillion, 1 percentage point higher than in the first eight months of the year, according to the NBS.

ENERGY

However due to the dismal global economic growth and activity, China's goods and services exports may continue to suffer, keeping the country's manufacturing sector under pressure and capping factory operations and industrial fuel demand, said crude oil and middle distillate trading managers at ChemChina and Chinaoil who refused who declined to be identified.

China's total exports value gained 1.9% month on month to $239.76 billion in September, as the value over the first three quarter contracted 0.8% year on year, data from General Administration of Customs showed.

Platts Analytics expects China's oil demand to trend lower year on year by 250,000 b/d in Q4, after two quarters of growth, due partly to a high base last year and as state-back industrial activity growth fades without further stimulus measures.

In addition, China's jet fuel consumption outlook also remains bleak despite the recent sharp recovery in domestic flight operations as international travel remains largely restricted.

Platts Analytics expects China's kerosene/jet fuel demand to remain weak and average 710,000 b/d in Q4, down year on year by 280,000 b/d.

China's domestic refineries processed 14.01 million b/d of crude oil in September, edging down 0.4% month on month and extending a slight downtrend since hitting a record high in June, due to high product inventory, National Bureau of Statistics data released Oct. 19 showed.

The country's crude throughput hit an all-time high of 14.14 million b/d in June before edging down to 14.08 million b/d in July and 14.06 million b/d in August, NBS data showed.

Meanwhile, for gas, Platts Analytics expects Chinese natural gas demand to continue to grow this winter with economic activity resuming growth and with conversions continuing between coal to gas in the heating sector, even at a relatively slow pace.

"China's GDP growth in Q3 is a sign that economic activity is recovering, albeit at a slightly slower pace than years past. However, gas demand was still quite strong and Platts Analytics estimates LNG imports grew by 15% over 2019 levels during this period," said Jeff Moore, Manager, Asian LNG Analytics

METALS

Metals markets rallied in the third quarter on looser credit conditions, robust domestic demand from infrastructure and construction, and a gradual recovery in export markets.

Chinese steel prices weakened in the second half of September but have been extremely strong again since trading resumed after the Golden Week holidays.

Domestic hot-rolled steel coil prices averaged Yuan 3,948/mt ($589/mt) in Q3, compared with Yuan 3,478/mt in Q2 on stronger manufacturing activity, according to S&P Global Platts.

Seaborne iron ore prices benefited from record Chinese steel production in the quarter to rise to an average of $118.2/mt CFR China over July-September, from $93.1/mt in the April-June quarter.

Total fixed asset investment over the first nine months rose by 0.8% year on year to Yuan 43.7 trillion ($6.5 trillion), NBS data showed.

Growth in China's Total Social Financing, or TSF, a major driver of economic growth, increased by 13.5% year on year in September, the highest growth rate since the start of 2018, data from the People's Bank of China showed.

The major contributor to stronger TSF was government bonds, most of which have gone into infrastructure to cushion the slower economy, providing support for metals prices.