Markets: India slows slightly, Brazil recovers

25 Apr 2017

Region:Africa, Asia (China, India), Australasia, Central & South America (Brazil), Topic:Demand, Production,

Market & Product:End Use (Cable Materials supply, Construction, Oil/Petchems/Gas, Power Utilities, Transportation), Energy (Harnesses and Assemblies, HV Power Cable, LV Power Cable, MV Power Cable, Winding Wire)

Q1 2017 data for copper wirerod used in wire and cable production shows a remarkable recovery in Brazil, while in India, demand has slackened slightly. In China wirerod used in wire and cable production is as expected.

Rest of the world copper wire & cable and copper wirerod markets
2015 / % Ch / 2016 / % Ch / 2017 / % Ch
('000 tonnes) / Q3 / Q4 / Year / 14-15 / Q1 / Q2 / Q3 / Q4 / Year / 15-16 / Q1 / 17-16
Copper w&c consumption
Energy cable / 1630 / 1621 / 6218 / 2.5 / 1441 / 1647 / 1662 / 1602 / 6351 / 2.1 / 1498 / 4.0
Comms cable / 148 / 147 / 569 / -0.5 / 132 / 148 / 150 / 144 / 574 / 0.9 / 134 / 1.5
Winding wire / 515 / 513 / 1956 / 2.5 / 464 / 529 / 539 / 502 / 2033 / 3.9 / 490 / 5.7
Total / 2293 / 2281 / 8743 / 2.3 / 2037 / 2324 / 2350 / 2247 / 8958 / 2.5 / 2123 / 4.2
Copper w&c production
Energy cable / 1760 / 1751 / 6739 / 2.9 / 1579 / 1785 / 1800 / 1740 / 6904 / 2.4 / 1634 / 3.5
Comms cable / 163 / 162 / 631 / -1.0 / 151 / 167 / 168 / 162 / 647 / 2.6 / 153 / 1.3
Winding wire / 506 / 504 / 1921 / 3.0 / 455 / 520 / 529 / 493 / 1996 / 3.9 / 482 / 5.9
Total / 2430 / 2418 / 9291 / 2.7 / 2185 / 2472 / 2497 / 2395 / 9548 / 2.8 / 2268 / 3.8
Copper wirerod used in w&c
China / 1544 / 1549 / 5827 / 2.8 / 1292 / 1557 / 1571 / 1575 / 5995 / 2.9 / 1362 / 5.5
India / 174 / 167 / 623 / 6.8 / 174 / 186 / 204 / 111 / 676 / 8.4 / 173 / -0.8
Brazil / 62 / 69 / 265 / -8.6 / 52 / 57 / 59 / 62 / 230 / -13.0 / 66 / 26.9
Rest of World / 648 / 632 / 2576 / 2.8 / 666 / 672 / 663 / 646 / 2647 / 2.7 / 667 / 0.0
Total / 2430 / 2418 / 9291 / 2.7 / 2185 / 2472 / 2497 / 2395 / 9548 / 2.8 / 2268 / 3.8

Note: Copper Wire & Cable only

Data: CRU * Rest of the World (ROW) includes the following: Middle East, Africa, Indian subcontinent, China, Southeast Asia, Australasia and Latin America.

Copper wirerod used in wire and cable production for Brazil rose 26.9% y/y to 66,000 tonnes for Q1 2017, but fell 0.8% y/y to 173,000 tonnes in India. Demonetisation in India has had a dampening effect on spending over Q4 2016 and Q1 2017, but this is not expected to last long as healthy auto production, a recovery in new builds and renewed consumer spending are expected to stimulate demand for wire and cable in 2017 (see detailed economic overview for India below). In Brazil, Q1 2017 saw a significant improvement to the economy, following two years of recession. An increase in auto production, as well as rising business and consumer confidence is fuelling wire and cable demand. (see under Brazil below for economic data).

For China, copper wirerod used in wire and cable production increased 5.5% y/y to 1.36 million tonnes for Q1 2017. This development is mainly on continued demand from new builds and healthy automotive production. However, wire and cable demand for housing and particularly automotive production is expected to weaken over the whole of 2017. (see China economic overview below).

China

The first 'hard' activity data of 2017 are good in parts, but also give cause for caution. The biggest pluses are that real estate sales and construction grew strongly, infrastructure investment rebounded after a weak end to 2016 and rapidly expanding machinery output accelerated further. The reasons for caution are that, first, after adjusting for inflation, Fixed Asset Investment (FAI) growth is decelerating. Second, car sales declined year-on-year, but car output grew strongly and resulted in rising inventory levels which will need to be corrected. Looking ahead, the government appears serious about tightening monetary policy, albeit gradually, as credit growth is edging down and market interest rates are rising - tightening policy will likely cause investment growth to slow. The government is also serious about reining in real estate demand, with house purchase restrictions being tightened further and mortgage rates increased, which should feed into slower sales and then starts as we move through 2017.

India

Demonetisation' resulted in a cash crunch after it was introduced in November 2016, which severely reduced domestic spending. However, contrary to the anticipated slowdown, Q4 GDP growth posted a solid gain of 7.0%, a tad lower than 7.4% in Q3. This seems contrary to other higher frequency data indicating a disruption to consumption, which opens up the possibility that the GDP estimate might not have fully captured the adverse impact of 'demonetisation' on the informal economy. We thus remain cautious and maintain our current view that the effect of 'demonetisation' will dissipate in H2 2017.

Domestic vehicle sales have already bounced back substantially and we project that total autos output will rise to 4.9 million units this year, up 10.1% from the 4.5 million units produced in 2016. The real estate sector was particularly hit hard by the cash crunch and was part of the reason that construction activity grew by just 2.8% last year. However, with INR 4 trillion ($62 billion) budgeted for infrastructure spending, we remain optimistic and expect growth in total construction output to accelerate to 5.7%. Stronger outturns in both the vehicle and construction sectors should help IP to expand more robustly this year. Though private investment is expected to be subdued, interest rates are now on hold so should not be a negative for private capital outlays. We therefore expect total IP growth of 3.7% in 2017 and GDP growth of 7.1%

Brazil

Market sentiment towards Brazil remains extremely positive and business confidence is soaring. Though manufacturing is not yet on the upswing, lower inflation will result in further interest rate cuts which should, in turn, accelerate improvement in manufacturing. Construction output fell by 5.3% in 2016 but should post a gain of 1.0% this year as investment improves. The government has made strides in controlling future spending but there is little chance of fiscal stimulus so in 2017, we expect modest GDP growth of 1.0%, after last year's decline of 3.6%.

After two years of recession, the economy is expected to post moderate growth in 2017 and strengthen throughout the forecast horizon. (see chart). The central bank's ability to anchor inflation expectations and cut interest rates is a necessary condition for the economy's rebound. Government spending is likely to be frozen, in real terms, for the foreseeable future. However, reforming the pension system and the tax code are also needed to finally bring the government's finances under control.

Contributor:Natalie Noor- Drugan, Publisher & Editor in Chief, Wire & Cable News