Manufacturing Weekly Economic Highlights | 22 July 2024

Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!

In this edition, we focus on the economic conditions in America, Europe, China, Thailand, as well as updates on the energy and logistics markets.

Americas

“USD rebounded moderately stronger this week”

“USD supported by risk-off sentiment offset by possibility of US rate cut”

“US unemployment applications rise to highest level since August 2023 with total claims at highest level since November 2021” 

“US industrial output up 0.6%, capacity utilization up to 78.8%, with more expansion forecast”

The USD Index (DXY) finished moderately stronger this past week, from 104.08 on 12 July 2024 to close at 104.37 on 19 July 2024. The DXY is up 0.26% for the week, down 1.35% for the month, up 2.99% YTD, and up 3.26% over the past 12 months.

The USD rose on risk-off sentiments following the attempted assassination of Trump and uncertainty concerning the Democratic party’s nominee for President, offset partially by anticipation that the US Fed may cut policy rates in September, as reported on 19 July by Bloomberg. Monex Inc. foreign exchange trader Helen Given said, “investors still have faith that the dollar itself, regardless of the state of the actual government, will continue to be the global currency of choice and keep value in a fraught political situation.”

The US Treasury yield curve steepened significantly when markets reopened on 14 July following the assassination attempt but reverted moderately throughout the week as traders refocused on the possibility of a US Fed policy rate cut.

Meanwhile, Bloomberg reported on 18 July that initial applications for US unemployment benefits rose last week by 20,000 to 243,000. This was the biggest rise since early May to reach the highest level since August 2023.

Continuing claims, which is viewed as a proxy for the total number of people receiving unemployment benefits, also increased by 20,000 to 1.87 million people, the highest level since November 2021.

Stuart Paul of Bloomberg Economics said, “The rather smooth climb of continuing claims and the upward trend in initial claims indicate the labor market is cooling. We expect the unemployment rate to climb throughout the second half of 2024, ultimately ending the year at 4.5%.”

MarketWatch reported on 17 July that US industrial production rose in June for the second consecutive month, with output increasing 0.6% MoM in June. Gas and electric utilities output increased by 2.8% MoM driven by increased use of air conditioners during the hot summer season. Car manufacturing rose 1.7% MoM.

Capacity utilization increased from 78.3% in May to 78.8% in June, thought this remains nearly 1% below its historic average.

Oxford Economics lead US economist Bernard Yaros said, “Industrial activity will steadily increase in the next quarters thanks to a nascent rate-cutting cycle by the Federal Reserve, continued strength in high-tech products and a pickup in global growth.”

Europe

“EUR ended moderately lower this week relative to the USD”

“Britain bounces back from 2023 recession, with GDP forecast of 0.7% in 2024 and 1.3% in 2025”

“European unemployment forecast drops to 6.5% in 2024”

“Europe adopts ESPR: Ecodesign for Sustainable Products Regulation, to cover nearly all goods in the EU market”

The EUR finished moderately lower this week, from $1.092 per EUR on 12 July 2024 to close at $1.089 per EUR on 19 July 2024. The EUR is down 0.21% for the week, up 1.78% for the month, down 1.39% YTD, and down 2.17% over the past 12 months.

Britain is predicted to bounce back from a recession in 2023 to achieve the highest growth of every major European economy in 2025, as predicted by the International Monetary Fund (IMF) and reported on 16 July by The Telegraph.

The IMF increased its UK 2024 GDP growth forecast from 0.5% to 0.7% and has forecast 2025 GDP growth to more than double to 1.5%. Germany and France are predicted to grow 1.3% in 2025, with Italy reaching 0.9%.

Meanwhile, the IMF held its forecast for German 2024 GDP at 0.2% as its manufacturing segment continues to struggle.

Bloomberg reported on 19 July that the European Central Bank (ECB) will achieve its 2025 inflation target of 2%, with 2024 inflation forecast at 2.4%. It has predicted longer term headline and core inflation will be steady at around 2%.

The ECB lowered its Europe 2024 unemployment forecast from 6.6% to 6.5%, with long term unemployment to level out at 6.4%.

This week the ECB also held its policy rate at 3.75% and provided no clear indication of when it will ease monetary policy. Market bets are predicting two additional policy cuts in 2024, though this may no longer be feasible.

The European Commission is expected to impose tariffs on Chinese biofuels of between 12.8% and 36.4% to reverse the damage caused by China’s dumping practices on domestic producers, as reported by The Wall Street Journal on 19 July.

The European benchmark for biodiesel derived from used cooking oil has fallen nearly 40% to an average of $1,400 USD per metric ton for the first seven months of 2024 compared with the same period in 2022. Meanwhile imports of Chinese biofuels into Europe surged from 550,000 MT in 2022 to 1 million MT in 2023.

The European Commission adopted the Ecodesign for Sustainable Products Regulation (ESPR), which became effective on 18 July 2024, as reported by the National Law Review on 19 July. The ESPR replaces the 2009 Ecodesign Directive for Energy-Related Products and takes a “more comprehensive approach to regulation product design and information sharing and strengthened market surveillance.”

The ESPR sets environmental sustainability requirements for nearly all goods in the EU market, establishes a digital product passport, and restricts or prohibits the destruction of certain unsold consumer goods.

The ESPR implementation period runs through 31 December 2030.

China

“The CNY closed moderately lower this week”

“China’s GDP falls from 5.3% to 4.7%”

Industrial production rises 6%, but retail sales only up 3.7% and new home sales down 26.9%”

“Mr. Xi’s state-led economic model appears to be running out of steam”

The CNY ended moderately lower this week, from 7.250 per USD on 12 July 2024 to close at 7.270 per USD on 19 July 2024. The CNY is down 0.27% for the week, down 0.12% for the month, down 2.20% YTD, and down 1.14% over the past 12 months.

China’s GDP expanded 4.7% YoY in 2Q24, down from 5.3% YoY in 1Q24 and lower than economist expectations, as reported on 14 July by The Wall Street Journal.

On a quarter-to-quarter basis, 2Q24 GDP growth was up only 0.7% QoQ compared with 1.5% QoQ in 1Q24.

Rising trade tensions, weak consumer spending, and the “festering” property crisis are generating strong headwinds for the Chinese economy. Manufacturing investment and exports primarily underpinned 2Q24 growth.

Industrial production in 1H24 was up 6% YoY but retail sales in 1H24 were up only 3.7% YoY and real-estate investment was down 10.1% YoY and new home sales plummeted by 26.9% YoY.

Chinese Premier Li Qiang, addressing the World Economic Forum in Dalian last month, said, “we should precisely adjust and slowly nurture [the economy] to allow it to gradually recover.”

Meanwhile, on 17 July The Wall Street Journal reported that China’s youth unemployment rate fell for the third consecutive month from 14.2% in May to 13.2% in June. Overall headline unemployment was unchanged in June at 5.0%.

China’s official Purchasing Managers Index in June showed that the employment subindexes for manufacturing, services, and construction were all in the contractionary range for the fifth consecutive month, indicating broad-based deterioration of employment conditions.

Chinese borrower defaults are also on the rise, increasing by 21,600 in June to 8.39 million borrowers.

The Wall Street Journal Opinion section noted on 18 July that, “Mr. Xi’s state-led economic model appears to be running out of steam, and the important question is whether he’ll be willing to change course. There’s no evidence yet that he is.”

Bloomberg reported on 17 July that the World Trade Organization (WTO) highlighted China’s “lack of transparency” on industrial subsidies. The WTO noted that China’s notifications on subsidies “do not provide information on expenditure levels in sectors where government support is likely to have global repercussions, such as aluminum, electric vehicles, solar modules, glass, shipbuilding, semiconductors, or steel.”

The report estimated Chinese funding for incentives ranges from $260 billion to $890 billion USD.

Thailand

“The THB ended moderately lower this week”

“Thai factory closures up 40% to nearly 2,000, sidelining more than 50,000 workers”

“Thai factory capacity utilization falls below 60%”

“Thailand creates new agency and drafts new law to attract foreign investment and become a regional financial hub”

The THB ended moderately lower this week, from 36.14 per USD on 12 July 2024 to close at 36.36 per USD on 19 July 2024. The THB is down 0.72% for the week, up 1.06% over the past month, down 5.73% YTD, and down 5.33% over the past 12 months.

Factory closures in Thailand increased 40% YoY to nearly 1,975 between July 2023 and June 2024, with job losses up 80% YoY totaling 51,500 workers, as reported on 15 July by Reuters. Meanwhile, the number of new factories has been steadily declining from more than 2,500 in the year ending June 2021 to 2,199 in the year ending June 2024.

Suzuki Motors recently announced that it will close its Thai factory that produced 60,000 cars per year.

Thai PM Srettha told the Thai parliament last week, “The industrial sector has slumped, and capacity utilization has fallen below 60%. It is clear that the industry needs to adapt."

To combat cheap imported goods imported mostly from China, Thailand in July started collecting 7% VAT on imported goods priced less than THB 1,500 (approx. $41 USD), but still exempts such products from customs duties.

Thailand’s GDP is expected to grow 2.5% in 2024.

Meanwhile, Thailand is creating a one-stop agency for integrated financial services to become more competitive in attracting foreign funds and investors, as reported by Bloomberg on 19 July.

The new agency will issue licenses to foreign companies for banking, securities, insurance, digital assets, and forward contracts. The new agency will also assist foreign business with services such as work permits and tax incentives.

Thailand is also in the process of drafting a new law to improve its positioning as a regional financial hub.

The Thai government issued a statement saying, “One-stop service, clarity in capital management are the key to Thailand growing into the financial frontier of the region, attracting capital, knowledgeable people to come to the country, creating benefits for the world economy.”

Last week we reported that Thai leading green energy conglomerate Energy Absolute stock was down 70% YTD amid accusations that the CEO and a Director committed fraud and corruption related to procurement of overseas equipment and software for a solar power plant between 2013 and 2015.

Bloomberg reported on 14 July that the CEO and the Deputy CEO of Energy Absolute have resigned as executives and directors “to ensure transparency and accountability.” The company will introduce a new executive board on 22 July to reassure investors of its “sound fundamentals and future.”

The Thai Securities and Exchange Commission (SEC) filed a case with the Department of Special Investigations and forwarded it to the Anti-Money Laundering Office for further legal action.

Commodities

“GSCI Commodity Index closed moderately lower again this week”

“Copper down 13% since May peak amid reduced Chinese demand”

“Lithium prices up 2.9% following Chile earthquake”

“Will aluminum substitution trend lead to sustained reduction in copper demand?”

“Is China boosting rare earth production to support its green energy industry, or to prevent the development of alternate sources?”

The GSCI Commodity Index finished moderately lower again this week, from 572.4 on 12 July 2024 to close at 555.85 on 19 July 2024. This index is a weighted index based on world-production of each commodity in the index, with energy and industrial metals comprising the bulk of the index weighting. The GSCI is up 5.25% YTD. Trading Economics has maintained its GSCI forecast this week at 586.2 by the end of 3Q24 and 610.2 in 12 months.

The world’s single biggest buyer of copper, State Grid Corporation of China, has reduced its copper wire purchases this year and ramped up purchasing of aluminum wire, as reported on 15 July by Bloomberg.

Copper set a record in May at $11,104.50 per ton on the LME and has since fallen 13% on reduced Chinese demand and profit taking.

Aluminum wire is less conductive, lighter, and cheaper than copper, making aluminum preferred for overhead power transmission whereas copper is preferable where space is constrained such as in underground city cabling. Globally, aluminum substitution of copper has reduced annual copper consumption by 1% to 1.5% over the past decade.

Market analysts are debating whether a large-scale substitution to aluminum could become a sustained trend limiting copper demand and pricing.

Reuters reported on 19 July that China’s lithium prices rose 2.9% to $12,357 per MT on 19 July following a powerful 7.3 magnitude earthquake that hit Chile’s major lithium producing region. Lithium had just set a seven-month low of $11,896 the previous trading session.

Chile holds the world’s largest lithium reserves, 90% of which are close to the epicenter of the earthquake in the Atacama Desert.

Lithium carbonate pricing hit seven-month lows amid surging Chinese production, which was up 57.4% YoY in 1H24. Lithium prices hit an all-time peak in November 2022.

Meanwhile, Chinese battery-material giant Ganfeng Lithium Group Co. is establishing a derivatives trading desk to hedge risks following extreme pricing volatility and rising geopolitical tensions, as reported on 15 July by Bloomberg. The derivatives desk will trade instruments linked to equities, indexes, commodities, and rates, with the largest single day position not exceeding $1.1 billion USD.

The global market for lithium has been extremely volatile. New supply and demand concerns have resulted in a boom-bust cycle for lithium, while governments pursue geopolitical and regulatory actions to safeguard access to resources including lithium.

Rare earth prices have plummeted in 2024, with the most profitable alloy neodymium-praseodymium spot price down 20% YTD to $50,000 per MT, as reported on 15 July by The Wall Street Journal.

Other rare earth elements have fallen even more, amid overproduction by China. China boosted its production quota 13% YoY in 2024.

Energy

“Crude ended moderately lower this week”

“Henry Hub ended modestly lower again this week”

“EU Natural Gas ended modestly higher this week.

“Oil prices down amid Chinese demand concerns”

“Ukraine blocks Russia’s Lukoil from exporting oil via their territory”

Brent Crude finished moderately lower this week, from $85.27 USD on 12 July 2024 to close at $82.56 USD on 19 July 2024.

Henry Hub finished modestly lower again this week, from $2.31 USD per MMBTU on 12 July 2024 to closes at $2.12 USD per MMBTU on 19 July 2024.

EU Natural Gas finished modestly higher this week, from €31.57 per MWh to close at €31.72 per MWh, equivalent to $8.54 USD per MMBTU. EU Natural Gas is down 1.96% YTD.

Crude prices were down this week with Brent Crude down 2.9% amid worries about Chinese demand , as reported on 19 July by MarketWatch.

Valendera Energy Partners MD Manish Raj said, “Market sentiment is cautionary, as all the demand bullishness has already been priced in and the market wants to see the promised demand actually materialize in the second half of 2024.”

US supplies tightened with the Energy Information Agency (EIA) reporting a fall in US commercial crude inventories of 4.9 million barrels. However, global uncertainty is overshadowing indicators of a tightening market. Chinese economic risks are offsetting expectations of a US Fed rate cut that could boost oil demand.

Meanwhile, the article also noted that more than 130 fires are burning in Alberta, Canada, putting at risk 500,000 bpd of production.

Reuters reported on 19 July that Slovakia and Hungary have stopped receiving oil from Russian producer Lukoil following Ukraine’s June ban on the transit of resources from Lukoil via its territory. This oil is supplied via the southern branch of the Druzhba pipeline.

Russia continues to supply natural gas and oil from other suppliers to Europe via Ukraine, including via pipeline to the Czech Republic.

South Korea’s state-owned Korea Hydro & Nuclear Power Co. was selected to construct two multibillion-dollar reactors in the Czech Republic, as reported on 20 July by Bloomberg.

This project could put South Korea in position to supply nuclear reactors across Europe. European nations are increasingly looking to nuclear power to replace expensive fossil fuels and to achieve challenging pollution reduction goals.

S. Korea is also in discussions to supply nuclear reactors to The Netherlands, Sweden, UK, Poland, and Slovenia, and has established a goal of exporting 10 reactors by 2030.

Logistics

“BDI ended moderately lower this week”

“The CFI finished moderately lower this week, its first weekly drop since 26 March 2024

“40-foot container cost from Shanghai to NY doubles to nearly $10,000”

“Houthi attacks continue, most intense combat for US Navy since WW II”

Baltic Dry Index finished moderately lower this week, from 1,997 on 12 July 2024 to close at 1,902 on 19 July 2024. The BDI is down 8.69% YTD. Trading Economics has maintained its BDI forecast this week at 2,151 by the end of 3Q24 and 2,484 in 12 months.

The Containerized Freight Index finished moderately lower this week, from 3,675 on 12 July 2024 to close at 3,542 on 19 July 2024. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is up 101.3% YTD. Trading Economics has maintained its CFI forecast this week at 3,875 by the end of 3Q24 and 4,401 in 12 months.

The cost to ship a standard 40-foot container from Shanghai to New York has surged to nearly $10,000 USD, with the Drewry World Container Index’s spot rate for this route hitting $9,387 on 11 July, as reported on 15 July by Reuters. The spot rate has more than doubled from February 2024, supported by Houthi attacks on vessels that have forced shippers to avoid the Suez Canal route.

Analysts are concerned that rates could surge as high as $20,000 USD per container as importers rush to ship goods prior to the potential imposition of higher tariffs. However, if shipping demand is not sustained, prices could fall abruptly.

Newsweek reported on 17 July that Houthi rebels attacked two tankers in 24 hours, including a Russian tanker likely transiting to China.

Houthis have reportedly previously informed China and Russia in March that their ships can transit the Red Sea without risk of attack.

Business Insider reported on 20 July that the US Navy’s mission to counter Houthi attacks is the “most intense combat since World War II.” The conflict surpasses the Tanker War which was a part of the Iran-Iraq war in the 1980’s.

The Tanker War involved Iranian and Iraqi attacks on merchant vessels in the Persian Gulf that persisted for several years. US warships were subsequently deployed in 1987 through 1988 to escort Kuwaiti tankers reflagged as American vessels, evading ocean mines and anti-ship missiles. During the conflict, the frigate USS Stark was struck by an Iraqi anti-ship missile, killing more than 36 Navy personnel.

Cmdr. Justin Smith, commander of the destroyer USS Mason, which just returned to his homeport from the Red Sea, said,” The challenges — from detection and the sustainment, and the watch teams and the readiness — is a lot higher. And that's why I compare that more so to World War II than, I'd say, even outpacing what was seen during the Tanker War.

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