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China Ends Year of Stabilization on High as Consumers Spend

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China's Consumer Prices
  • China Ends Year of Stabilization on High as Consumers Spend

China’s economy accelerated for the first time in two years in the final quarter of 2016, cementing an economic stabilization that’s giving leaders a buffer as they transition to neutral policy and prepare for potential trade tensions with Donald Trump.

Gross domestic product increased 6.8 percent in the three months through December from a year earlier, compared with a 6.7 percent median estimate in a survey. The full-year expansion of 6.7 percent was the slowest since 1990, but still landed right in the middle of the 6.5 percent to 7 percent official target.

China powered through a volatile start to the year with strength that surpassed expectations, propelled by robust consumption from an increasingly wealthy middle class. With manufacturing also rebounding and deflation tamed, the central bank is turning to neutral policy to address a debt binge that inflated asset bubbles during a two-year easing cycle.

  • Retail sales increased 10.9 percent from a year earlier in December, the strongest reading in a year and more than the projected 10.7 percent advance
  • Industrial production rose 6 percent in December from a year earlier, compared with and estimated 6.1 percent rise
  • Fixed-asset investment excluding rural areas expanded 8.1 percent for the full year

“As China’s traditional growth drivers of investment and exports have weakened, Chinese private consumption has become the key engine for economic growth,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. “This trend is expected to continue over the medium term.”

That points to continued stable growth ahead of a twice-a-decade Communist Party leadership reshuffle this year. Consumption contributed 64.6 percent to 2016 growth, a statistics official said at a briefing in Beijing. Services, which accounted for more than half of output for the first time in 2015, made up 51.6 percent last year, official data showed.

Yet, behind the solid headline figures, there’s a widening divergence among regions and industries that’s creating winners and losers across the nation of 1.4 billion people.

The full-year expansion in 2017 will edge lower to 6.4 percent, Bloomberg economist surveys show, while the International Monetary Fund has raised its forecast to 6.5 percent. Maintaining growth requires fending off policy challenges including a slumping yuan that posted its biggest annual drop in two decades and increasing capital flight pressure.

Policy makers unleashed more fiscal stimulus last year to help prop up growth, in addition to keeping the old benchmark interest rate at a record low. New money supply management tools are coming to the fore as an alternative to broad easing that could weaken the yuan.

Reflation has been a bright spot as the producer price index snapped four years of deflation. Manufacturing has strengthened with official gauges at or near multi-year highs.

Beyond those promising signals, exports have fallen for months amid tepid global demand. That’s just as China’s government prepares for potential trade tensions with Trump.

While the economic rebalancing toward consumer-led growth continues, reforms of inefficient state-owned enterprises in heavy industries have stalled as the old smokestack economy came roaring back last year, competing more for capital against private firms.

Credit growth remains robust with shadow banking making a comeback, fueling concerns deleveraging isn’t happening despite official pledges. Authorities also are trying to deflate big-city property prices that soared then moderated near year-end on tightening measures.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Commodities

Agric Industries Take Interest In Unlocking Nigeria’s $10bn Palm Oil Export Potential

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Some agric-focused industries and firms have indicated interest in enhancing Nigeria’s agricultural productivity and competitiveness through the nation’s $10 billion palm oil export potential.

At the launch of a new report by a research and advisory firm, Vestance, significant untapped opportunities within Nigeria’s oil palm sector were revealed.

Discussing how the nation could regain its lost glory in palm oil production and exportation, stakeholders in the sector emphasised the need for government agencies, private sector investors, smallholder farmers, research institutions, and development partners to work together to help change the narratives in the palm oil sector.

Titled “Reclaiming Lost Glory: Nigeria’s Palm Oil Renaissance,” the report, which was unveiled in Lagos disclosed that Nigeria, despite being a major producer historically, currently exports only $1.34 million in palm oil, ranking 78th globally, while importing $372 million annually

Vestance’s Research Lead, Razaq Fatai, said the report illustrates the immense opportunities lying dormant in the country’s underutilised oil palm plantations, noting that by capitalising and rejuvenating these plantations, Nigeria could generate over $10 billion in export revenue alone.

He explained that Nigeria’s palm oil production began to decline during the country’s civil war between 1967 and 1970, saying, it is now time to begin to reverse the decline and put the sector back on track.

Speaking at a panel session on ways to revitalise the oil palm sector, experts proffered means by which challenges confronting the palm oil sector could be tackled.

In his submission, the Managing Director, SWAgCo (O’dua Investment Group), Dr. Adewale Onadeko, said Nigeria should embrace an agro-industrial cluster strategy, adding that essential infrastructure such as seeds, fertilisers, extension services, processing, and storage facilities should be prioritised if the expected gains could be realised.

Another panellist, Dr. Bayo Ogunniyi, Country Programme Analyst for International Fund for Agricultural Development, highlighted the myriad challenges facing smallholder farmers, particularly the lack of access to finance and the prevalence of old, low-yield seeds.

He underscored the urgent need for Nigeria to distribute high-quality seeds to smallholder farmers to enhance production levels.

Ogunniyi also pointed out that the oil extraction rates of smallholder palm oil processors are alarmingly low, often falling below 15 percent, compared to the 25 percent extraction rates achieved by modern processing mills. Improving these extraction rates is crucial for maximising the output from Nigeria’s palm oil sector.

In his own contribution, CEO of BulkDirect, Ramses Najem, emphasised the importance of situating processing facilities closer to the farms to reduce transportation challenges.

Other speakers at the report launch called for a nationwide adoption of high-yield seeds to boost production, investment in modern processing facilities to increase oil extraction rates, and the development of strategic transportation networks to streamline the supply chain.

 

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Crude Oil

Brent Rises to $73 Per Barrel as Oil Producer Iran Plans Another Attack on Israel

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The international crude benchmark, Brent Crude, rose to $73 per barrel as it rose 29 cents or 0.4 percent to settle at $73.10 a barrel on Friday on expectations that Iran will attack Israel from Iraq in the coming days.

The US West Texas Intermediate (WTI) crude gained 23 cents, or 0.3 percent to settle at $69.49.

The market has seized on the news from Thursday that Iran is preparing to attack Israel from Iraq within days.

However, market analysts point out that the impact on oil prices may be muted as the attacks signify a show of strength rather than action. This is why there wasn’t a much price boost.

Iran’s backed groups are currently fighting Israel, including Hezbollah in Lebanon, Hamas in Gaza and the Houthis in Yemen. So, this has seen the two countries engaged in a series of retaliatory strikes within the broader Middle East warfare set off by fighting in Gaza.

In a related development, the US asked Lebanon to declare a unilateral ceasefire with Israel to revive stalled talks to end hostilities between Israel and Hezbollah.

Another factor supporting prices is the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+ which could delay plans to increase supply in December.

The group has always maintained that its planning production cuts rollback would depend on market conditions.

The US, the world’s largest oil producer has been seeing an increase in its production with Exxon Mobil saying its global output hit an all-time high while Chevron also said its US production hit a record high.

This aligns with projections that annual output was on track to hit a record 13.2 million barrels per day in 2024 and 13.5 million barrels per day in 2025.

Last month, OPEC’s production increased by 370,000 barrels per day in October after Libya’s political resolution and its resultant 500,000 barrel-per-day output boost.

Libya’s output recovery led OPEC to raise its production to nearly 30 million barrels daily, even as Iraq, Iran, and Saudi Arabia lowered their output.

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IPMAN Pushes Back on Dangote’s Call to End Petrol Imports, Cites High Costs at Refinery

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The Independent Petroleum Marketers Association of Nigeria (IPMAN) has addressed concerns about its members purchasing petrol outside the country.

Investors King reported that Aliko Dangote, the owner of Dangote Refinery, urged Nigerian oil marketers to stop importing petrol and instead lift supplies from his refinery.

Dangote mentioned that the refinery currently has over 500 million liters of petrol in storage and that marketers’ reluctance to lift his product is causing financial losses.

In an interview on Friday, IPMAN’s National Assistant Secretary, Yakubu Suleiman, stated that the association cannot compel its members to buy petrol from the Dangote Refinery due to the deregulated nature of the market.

According to Suleiman, IPMAN members cannot patronize Dangote if his petrol is more expensive than other suppliers. He explained that, for profitability, marketers must seek the most affordable fuel sources.

Suleiman also accused Dangote of trying to monopolize the oil market, noting, “Prices are determined by international pricing. Dangote should ideally be communicating daily about his pricing. But he can’t enforce that we buy only from his depot without stakeholder engagement.”

Suleiman added, “IPMAN cannot simply instruct our members to purchase solely from Dangote Refinery. We operate in a deregulated system. Marketers will source products where prices are cheaper and advise members accordingly.”

He explained, “If Dangote sells at N1000 per liter, and there are other sources selling at N900, we can’t direct marketers to choose Dangote simply because it’s his product. We prioritize lower prices and profit.”

Suleiman also noted that last week, Dangote’s price was higher than other sources, explaining, “For example, last week he offered N995 per liter, with additional costs to transport the product to depots. Independent marketers can’t sell at a profit under these conditions, so we must consider Nigerians’ interests.”

This comes after IPMAN President Abubakar Garima countered Dangote’s allegation that marketers were boycotting his refinery.

He pointed out that marketers cannot load petrol from Dangote’s refinery in Lagos despite having paid ₦40 billion to the Nigerian National Petroleum Company Limited (NNPCL).

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