The much-signalled slowdown in China’s economic growth may not be as etched in stone as some believe.
Teck Resources Ltd. , one of the world’s top exporters of coking coal, the key ingredient for steel making, said China could be on track to have record steel production this year, and pointed to its own customers as proof.
“We’ve had a couple of quarters where we’ve produced more [coal]than we’ve sold,” chief executive officer Don Lindsay said Tuesday, after the company reported record revenue for the first quarter on the back of higher prices as well as stronger output of coal, its chief business unit. “It wouldn’t surprise me if this quarter we sell more than we produce.”
Customers have contacted Teck to ask it to accelerate its coal shipments, he added.
China is the world’s largest steel maker, and home to many of Teck’s customers. The China Investment Corp is a major stakeholder in the Vancouver-based company.
Coal prices have risen in recent months, helped by strikes and flooding concerns in Australia, the world’s top coal exporter.
Meanwhile, concern has grown that China’s economic growth could be slowing after a decade of ravenous demand for commodities, especially those related to the construction industry and infrastructure. China's gross domestic product growth slowed to an annual rate of 8.1 per cent in the first quarter, its slackest pace since 2009. The Asian giant has faced slumping exports and slowing growth as its key markets of Europe and North America climbed out of recession.
“Sometimes there can be a complete misread of what’s really going on,” said Mr. Lindsay, citing early April figures for steel production that point to annualized steel production of 740 million tonnes a year in China, well above estimates of only a month ago.
“Everything has sort of slowed down recently, but there is an expectation on our part that things are going to pick up,” agreed Bart Melek, head of commodity strategy at TD Securities Inc. in Toronto. “It looks like there may be the beginning of a trend.”
Teck reported first-quarter adjusted profit of $504-million, or 86 cents a share, which was slightly below the consensus estimates of 88.6 cents a share, but well above the $450-million it reported in the same year-ago period.
Revenue for the quarter came in at a record $2.5-billion, up from $2.4-billion in the same quarter last year.
Teck competes with global giants such as BHP Billiton and Rio Tinto, which specialize in producing bulk commodities on such a scale as to protect themselves from market fluctuations. Diversified miners protect themselves against down markets by becoming larger, more efficient producers and Teck has pushed hard to expand its operations, particularly in coal, the only commodity it produces that did not see prices fall in the first quarter.
Teck’s record revenue in the period came largely amid better coal prices and a 43-per-cent increase in coal output. Coal revenue increased by $179-million amid coal prices that were 8 per cent higher in the quarter and as it sold more.
Copper output and sales were also up in the quarter, although average prices fell for the metal that China consumes so profusely in massive urbanization and infrastructure projects.
“Revenues from our copper business unit remained similar to a year ago as higher sales volumes were offset by lower copper prices,” the company said. Revenue from the zinc business also rose as it sold more of the metal, despite lower prices.
Prices for zinc, silver, molybdenum and lead fell in the quarter, Teck said.