Citi says it’s seeing a good sign for China’s economy: Production of air-conditioners and other home appliances is ramping up in the country.
Optimism for China’s outlook is on the rise after the county said its gross domestic product grew more than expected in the first three months of this year, spurring analysts to raise 2019 growth forecasts.
Uncertainties remain, however, including whether Washington and Beijing will reach a deal to end their bruising trade war, and to what degree China’s future growth is dependent on monetary and fiscal stimulus.
But for big ticket home appliances such as air-conditioners, refrigerators and washing machines, positive signs are emerging, analysts at the U.S. bank said in a report dated Thursday.
Citing data from Wind and Citi’s own research, they said that production of the consumer staples increased 3% overall in the first quarter from the year before after a decline of 5% in the third quarter of 2018 and an unchanged reading in the fourth quarter.
Air-conditioner production grew 8% on year in the first quarter, washing machine output grew 4% and refrigerators declined 4% — but that was much better than the 15% decline seen in 2018 — Citi said, describing “significant improvements in growth rates” for the products.
The report said the production increase has implications for rising demand for important metals that go into the manufacturing the products.
“White goods are important end markets for cold rolled and galvanized steel (and hence for zinc),” Citi said.
“Stainless steel use is also highly skewed towards kitchen applications (and, by implication, nickel and ferrochrome demand),” it added. “Air conditioners are big consumers of copper and a strong pick-up in production should create demand for copper tubes as well. ”
The report said that weakness in Chinese consumer spending goes beyond those appliances, but stressed that a series of income tax benefits in place beginning late last year “should be the key catalyst for possible consumption recovery.”
In addition to its gross domestic product, China also announced its latest monthly figures for major economic barometers industrial production and retails sales.
Industrial output gained 8.5% year-on-year in March — easily beating the 5.9% gain estimated in a poll of economists by Reuters, and registering the fastest growth since July 2014.
Retail sales, meanwhile, grew by 8.7% in March year-on-year, beating Reuters’ projection of an 8.4% gain.
And figures for manufacturing activity rose unexpectedly in March, growing at the fastest clip in eight months, a private survey showed.