No immediate output cut by OPEC
OPEC will not rush into making a further cut in oil output or end some countries’ exemptions to output limits, OPEC delegates said, although a meeting in Russia next month is likely to consider further steps to support the market. OPEC and allied non-OPEC producers agreed on May 25 to extend an existing supply cut into 2018, but oil has fallen sharply then on rising production from the United States and from Nigeria and Libya, two OPEC members exempt from cutting output. Comments from key oil ministers also suggest the OPEC-led group is in no rush. OPEC member countries, Russia and other producers initially agreed to cut production by 1.8 million bpd for six months starting on January 1. Niegeria and Libya were exempted from the cut because of production losses caused by unrest. Iran was given a small increase so it could recover market share lost while under Western sanctions.
China economy improves in Q2
China’s economy continued to improve in the second quarter, with corporate profits rising and hiring up, a private survey showed. However, it suggested that the Asian giant may have to brace for tougher times ahead even though firms have been able to weather a tighter financing environment. The quarterly survey of thousands of Chinese firms by China Beige Book International (CBB) showed that while the property sector slowed, manufacturing improved further and the retail and services industries bounced back after a difficult first quarter.
The results of the survey reinforced a flurry of recent data and policymakers’ comments that indicated authorities were working to curb financial risks and keep the economy on an even keel heading into a key political meeting this year. The survey showed surprisingly strong performance in the commodities sector despite some price weakness in the second quarter, with the aluminium sector particularly strong.
The improving economy, especially the healthy labour market, is no doubt welcome news ahead of a leadership revamp at an autumn congress of the ruling Communist Party of China. Yet signs of stress in the corporate sector pointed to a bumpy ride for businesses. CBB said cash flow was negative for many companies and inventory levels in the second quarter was at the highest in the history of the survey.
That is in line with official data showing growth in industrial inventories picked up to over 10% in April, sparking worries of weak demand. CBB said there are signs tougher times could be ahead for Chinese companies during a period of deleveraging and rising interest rates. “It remains true that either rates have to come plunging back down, as the (state planner) recently called for, or the present level of corporate activity is headed for a cliff,” CBB said in its report.
As the government stepped up its campaign to curb debt risks and stabilise the financial sector, growth of China’s broad money supply came in at the slowest in at least two decades in May, though bank lending remained solid. The CBB survey showed the corporate sector started to feel the effect of tighter credit conditions in the second quarter after escaping relatively unscathed in the first three months of the year, with the cost to take a bank loan the highest since 2014. But borrowing was not impacted much, CBB said, likely due to firms’ positive business outlook for the next six months, though CBB said that this may not last if tightening persists.
“Companies assume deleveraging is transient, likely because they are sceptical the Party will allow economic pain in 2017. “It will not be until 2018 when we find out whether deleveraging is genuine because it won’t be until 2018 that it will actually hurt”, CBB said.
Japanese investment in Malaysia expected to increase 30 percent this year.
The Japanese Chamber Of Trade And Industry In Malaysia (JACTIM) expects Japanese investment in Malaysia to increase by 30 per cent this year. JACTIM President Toshihiko Todokoro said that Japanese companies will expand operation in Malaysia if political stability is maintained, since it is important for those companies, especially new investors. The latest data shows that Japanese investment in Malaysia is concentrated on the manufacturing sector, notably in the electrical and electronics industry. Half of about 1,400 Japanese companies operating in the country are manufacturers. Japanese firms’ cumulative investment in Malaysia is estimated at RM52 billion (US$12 billion).