Oil, mining shares mixed, with China's outlook uncertain
Oil and metals mining shares traded on a mixed note in the Asian markets Thursday, as analysts stressed that China remained a key force that will ultimately decide the fate of demand for most major global commodities.
And while economic growth in China appears to be improving, the outlook remains uncertain.
On Thursday, government data showed that the nation's economy grew a slightly better-than-expected 6.1% in the first quarter from a year earlier, after expanding 6.8% in the fourth quarter. See full story on China economic data.
Overall, "China continues to walk a very thin tightrope" and growth remains "below the optimal level to avoid major civil unrest," said Kevin Kerr, editor of Global Commodities Alert.
But that also means that "demand for key commodities such as energy and agriculture, industrial metals and soft commodities will continue to be brisk in China as they try to stave off a major collapse by continuing to use every means possible to stimulate the economy and create infrastructure projects," he said.
"China will clearly be the driving force in commodities during this cycle and perhaps for decades to come," he said.
Fueling the drive
China is one of the biggest factors in the growth of world oil demand, said Charles Perry, president of Perry Management, an energy-consulting firm.
And although the nation has seen a slowdown in its economy, its "demand growth is still positive," he said.
Oil shares in Asia Thursday seemed to reflect that perception. In Sydney, shares of Santos Ltd. tacked on 2.7%, and Woodside Petroleum rose 1.9%. Nippon Oil added 3.9% in Tokyo.
Likewise in Hong Kong, China Petroleum & Chemical gained 0.7%, but Cnooc Ltd. fell 1.7% after Macquarie, in a research note Thursday, cut its target price on the stock to 9.25 Hong Kong dollars from 10.50 Hong Kong dollars.
In the overall Asian markets, Japan's Nikkei 225 was up 2.9% at midday, and the broader Topix gained 2%. China' Shanghai Composite was 0.2% higher, and Australia's S&P/ASX 200 climbed 1.1%, but Hong Kong's Hang Seng Index lost 0.2%.
"China is still a developing oil consumer," said Perry. "The worldwide recession has slowed them a little, so I think we will see them recover first, and when their economy does recover, so will their growth in demand for oil." Oil prices closed below $50 a barrel on the New York Mercantile Exchange on Wednesday following a bigger-than-expected gain in U.S. oil inventories. See Futures Movers.
On Thursday, Macquarie cut its 2009 forecast for Brent crude to $52.25 a barrel from $59 and lowered its 2010 projection to $70 from $76.
"As long as the inventories keep rising in the U.S., the perception will be that we still have a surplus, and that keeps a lid on the price," said Perry.
In a note to clients, Macquarie Analyst Jan Stuart said that because of the large inventory build-up and weak demand, oil prices will "remain under pressure for another year" before recovering to $70 in the second half of 2010.
Perry said he believes "we will be seeing a fundamental rise [in oil prices] due to market demands, with a lot due to China."
In electronic dealings Thursday on Globex, prices for May crude edged up by as much as 2% to touch a high of $50.30.
