What is happening with the prices of industrial raw materials in China?

Prices in China of commodities such as iron ore, steel rebar, coal and copper hit record highs this month, prompting the government to step in to curb increases “unreasonable” costs to consumers.

WHAT HAVE THE PRICES OF COMMODITIES DONE?

As the factory floor and the world’s largest construction market, China has been the main driver of global metals markets for more than a decade.

From the start of the year to mid-May, prices for steel rebar, hot-rolled steel coil and copper in China – vital for the construction of machinery, buildings, appliances and vehicles – jumped more than 30% due to the recovery in construction and manufacturing. supercharged demand from the world’s largest consumer of metals.

A slew of other vital industrial inputs – including iron ore, thermal coal, sulfuric acid and glass also saw double-digit gains on the verge of reaching record highs as growth in overall consumption has exceeded supply.

WHAT IS HAPPENING WITH THE CHINA ECONOMY?

China’s economic recovery accelerated sharply in the first quarter after a coronavirus-induced crisis earlier last year, as gross domestic product (GDP) jumped a record 18.3%.

Aggressive government stimulus measures launched at the height of a COVID-19 lockdown last year have helped revive construction activity, as the world’s largest manufacturing base capitalized on growing demand for devices, exercise equipment and machines worldwide locked down from mid-2020.

China has also decided to cut emissions by shutting down obsolete chimney factories, which further bolstered metal prices.

Production of metals, from steel to copper and aluminum, is up sharply year over year, with refiners, smelters and manufacturers producing intermediate metal products used by manufacturers.

WHAT IS THE GOVERNMENT DOING NOW?

With soaring commodity prices sparking fears of inflation, the government has urged coal producers to increase production while promising to investigate the behaviors that push prices up. The national cabinet has pledged to step up its management of supply and demand for commodities, including stockpiling and strengthening inspections in spot and futures markets.

Regulators in Shanghai and the Tangshan Steel Center also warned factories this month against price gouging, collusion and irregularities, and said they would shut down operations in those markets severely disrupting market orders. .

HOW HAS IT AFFECTED GLOBAL MARKETS?

Australia has been a big beneficiary of China’s strong demand for metals, with record iron ore exports dampening its economy despite trade tensions with China in other sectors.

Yet China’s aggressive buying frenzy has left overall ore and metal supplies in other regions relatively tight, with London Metal Exchange and CME copper stocks sitting near their lows in several years. years.

If China’s efforts to crack down on speculators trigger a wave of metal sales that dampen its import demand, it will make it easier for other metal buyers to secure their short-term supplies.

But analysts say China’s general appetite for the metal is expected to remain strong as long as its economy grows.
Source: Reuters (written by Gavin Maguire and Lincoln Feast; edited by Robert Birsel)


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