Financial data in Q2 2010 indicates that the global economy is slowing, but with a minimal risk of a double dip recession, therefore reducing concerns that industrial minerals demand is about to start shrinking.
While the major minerals markets of Europe and the USA have their own challenges to stop falling into another recession, China has had a fine balancing act to prevent any sudden slowdown of its economy while also avoiding overheating.
US growth
In the USA, mineral demand dampened from downside surprises to US economic data throughout Q2 2010. While second quarter figures look better than the first quarter, analysts believe the momentum is slipping with growth expected to be flat.
“The overall message from the data throughout this year still supports our view that growth will continue, albeit at a slightly slower pace,” said analysts at Barclays Capital (BarCap) investment bank.
“We look for GDP to grow by 3.2% in 2010 and 3.4% in 2011 (after dropping 2.4% year on year in 2009),” the bank added.
Industrial output in the USA, a major customer for foundry minerals and refractories, is forecast to grow 6.6% quarter on quarter (q/q) in Q2 2010 and is set to grow, on average, just under 6% q/q over the next six quarters, according to BarCap.
“While these numbers are not particularly strong, they do provide solid support to US commodity consumption over the near term,” the bank said.
Industrial output includes strong vehicle sales figures, which consumes not only foundry but plastic filler and pigment minerals such as wollastonite, titanium dioxide, and iron oxide.
The US housing market is also showing strength with investment to grow by 6.4% year on year (y/y) in 2010, after a sharp decline of 20.5% in 2009.
Housing in 2011 is expected to expand a further 22.5%, increasing demand for building and ceramic minerals such as kaolin, ball clays and feldspar.
European crisis
Impacting minerals demand in Europe was sovereign debt issues which threatened to drag down not only the countries directly involved but also countries in the eurozone.
As governments in Greece, Spain and the UK take steps to reduce burgeoning public debt, it is expected that spending cuts will inevitably constrict economic growth.
“We look for growth to be just 1.2% y/y in 2010 and 1.8% y/y in 2011 after a decline of 4.1% in 2009,” said BarCap.
“There is a very clear divide among euro area economies, resulting in ourselves being positive on growth for Germany, France and, to some degree, Italy, while negative on growth for economies such as Portugal, Spain, Greece and Ireland.”
The German economy, the manufacturing giant in Europe and a large consumer of industrial minerals, is also set to grow in H2 2010, with Q2 2010 growth outstripping Q1 2010 in part due to a pick-up in the construction sector.
"Given the upwards trend in industrial demand and the optimistic mood among companies, the economic recovery should strengthen in the second half of the year," the German finance ministry said.
"The recent positive development however should not obscure the fact that with important indicators, pre-crisis levels have not yet been reached and production is still below-capacity."
Chinese appetite
Spelling bad news for industrial mineral demand, China's economy was shown to be slowing down in Q2 2010, with the trend expected to carry on for the rest of the year.
GDP growth was down to 10.3% from 11.9% in Q1 2010, the National Bureau of Statistics (NBS) said, which was slightly below market forecasts of 10.5% growth.
Bringing GDP down was curbs on lending to home buyers and local authorities, affecting demand for building raw materials including industrial minerals used for making cement such as lime and refractories, while the slow withdrawal of the government stimulus spending was putting an end to inventory rebuilding for raw materials.
The government showed no sign adjusting fiscal policy to push up GDP with Sheng Laiyun, an NBS spokesman, saying that GDP growth rate remained on target.
"The slowing will help our economy avoid overheating and assist in the transformation of our economic model," he said.
The government was also likely to keep up its campaign to stop property speculation while increasing spending on public housing to stabilise growth, while other analysts warned China not to further tighten spending in case the economy slows faster in H2 2010 than expected.
"In the second half of the year, external demand will gradually weaken and the dividend from the trade surplus will fall. This requires an increase in overall social investment and a halt to tightening of both fiscal policy and monetary policy," the China Securities Journal said.
During the deepest global recession in 80 years, China’s economy has kept growing, with increasing demand for industrial minerals with Chinese exports booming.
Overall, analysts said the slowdown in global growth should not be seen as indication of another recession, with some restriction needed to reduce the chance of economic bubbles being created.
“A slowing in momentum of growth does not mean that the global economy is heading towards imminent disaster, and in some economies it is a welcome sign to avoid overheating,” said BarCap
“We had been expecting economic data to indicate a slowdown, yet we still do not see a double dip as anything more than a small risk.”