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For the week beginning Monday, July 2nd

Following last Friday’s rally, commodity prices weakened on Monday as weaker than expected manufacturing data weighed on markets. The Institute for Supply Management’s PMI number for June dropped to 49.7 – signaling contraction in the U.S. manufacturing sector for the first time since July 2009, while Markit’s PMI number for the Eurozone came in below 50 for the 11th consecutive month as the official Chinese PMI number eased to 50.2 in June.

In response, base metal prices in London softened, including lower LME official 3-mo. prices for copper ($7,637/mt), aluminum ($1,902/mt) and nickel ($16,635/mt). In New York, crude oil prices were off more than $2 a barrel to below $83/bbl, gold futures dipped to around $1,600/to and COMEX Sep copper was down 3 cents to $3.467/lb. this afternoon.

While stock markets in Europe started the week in positive territory, stocks on Wall Street were mixed today with the Dow Industrials off 0.33% early this afternoon as the Nasdaq was holding onto minor gains. 

A holiday-shortened week in the U.S. this week as the July 4th holiday quickly approaches, but plenty of economic news is scheduled for release this week. As indicated, the ISM number for June disappointed at 49.7, but the Census Bureau also reported this morning that construction spending advanced 0.9% month-on-month in May and 7% as compared to May 2011. For the year to date, construction spending is up a healthy 9.4%. Tomorrow we’ll get the latest factory orders and vehicle sales figures, but the big release in the U.S. this week is the June jobs reports. The consensus forecast is for an increase in payrolls of around 100,000 and an unchanged unemployment rate of 8.2%. We’ll have a look at all the latest economic, commodity and scrap market highlights, as well as an update on the up-coming and sure to be best ever ISRI Commodities Roundtable (September 10-12, 2012) in this week’s Friday Report. 

Guest Contributor: Simon Rabinovitch, Beyondbrics blog,http://blogs.ft.com/beyond-brics/

Chinese econ stats: to doubt or not to doubt?

Is China’s slowdown worse than the government is letting on? That was the provocative claim in a New York Times article last week which reported that officials were manipulating data on everything from tax revenue to power production in order to present a rosier picture of the economy. 

But two prominent analysts have now come to Beijing’s defence, arguing that Chinese statistics are reliable and concerns about falsification overblown. They say the truth is that the economy is slowing, not collapsing, and that the data have accurately portrayed this.

Chinese statistics have a chequered reputation. There is strong evidence that the government has massaged data in the past, exaggerating growth figures during slowdowns and underreporting them when the economy is overheating.

Li Keqiang, the man widely expected to succeed Wen Jiabao as Chinese premier, was quoted as saying in 2007 that GDP was “man-made” and “for reference only”, and that he preferred to look at more concrete data points – specifically, electricity production, rail cargoes and bank lending – that were less susceptible to interference.

Hence the splash made by the Times with its article. It alleged that local and provincial figures were not just adjusting growth figures, but were going so far as to order power plant managers to overstate electricity production to make sure that micro-data was falsified in line with macro-data. It continued:

Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.

The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad.

A bold claim, and one that caught the attention of investors. Over the past few days, two leading economist have weighed in. 

Lu Ting of Bank of America-Merrill Lynch countered that it just doesn’t make sense that local officials would want to overstate electricity production. 

Energy use per unit of GDP is an important metric for gauging the environmental record of officials, so exaggerating electricity production would be self-defeating. What’s more, local governments would only be too willing to report real numbers: “as many local officials have been pleading Beijing to ease tightening measures, it’s not in their interest to massively over-report power data to mask the slowdown”.

Zhu Haibin of JP Morgan questioned whether it would even be possible for power companies to distort data to any significant extent: “the power production number is difficult to falsify given the high concentration in the market and big companies report the data directly to the central government via automated computing system.”

Nevertheless, Zhu was quick to point out that data reported by the government is hardly cause for much cheer. From industrial production to investment and exports, the economy has slowed in the second quarter from the first. Like many other economists, he expects a “moderate bounce back” in the second half as fiscal stimulus and monetary easing grain traction. 

But for now, the official numbers, whether falsified or not, aren’t exactly pretty.

ISRI Spec of the Week: From ISRI’s Scrap Specifications Circular 2012, Guidelines for Ferrous Scrap:

208 No. 1 bundles

New black steel sheet scrap, clippings or skeleton scrap, compressed or hand bundled, to charging box size, and weighing not less than 75 pounds per cubic foot. (Hand bundles are tightly secured for handling with a magnet.) May include Stanley balls or mandrel wound bundles or skeleton reels, tightly secured. May include chemically detinned material. May not include old auto body or fender stock. Free of metal coated, limed, vitreous enameled, and electrical sheet containing over 0.5 percent silicon.

Monday’s Quote: “Healthy citizens are the greatest asset any country can have.” -- Winston Churchill

HAVE A GREAT 4th of JULY!!!