Record Chinese Commodities Start Running Into Macro Headwinds
(Bloomberg) -- Chinese commodities are displaying a greater sensitivity to macro conditions than the more distinct measures in place to cool prices.
Copper futures sank along with other industrial commodities after a sharp slowdown in China’s credit growth that presages a tougher demand environment for raw materials, and an inflation scare in the U.S. that battered risk assets more broadly. The worst of the losses were incurred in ferrous markets keyed to construction demand, including from the highly credit-sensitive property sector.
Copper’s scorching gains were already weighing on imports and stretching the willingness of consumers to pay record prices. China’s own inflation fright came with the fastest rise in PPI since October 2017. Premier Li Keqiang’s latest comment specifying better coordination of monetary policy as crucial for dealing with surging commodities suggests the authorities view the problem as liquidity-led as much as anything else.
“Ultimately, the easing credit impulse in China should take some wind out of the sails for commodity demand,” said TD Commodities.
China’s credit taper has been well flagged -- and it’s doubtless of little consequence to bulls convinced that the world’s transition to clean energy means copper’s rally has many thousands of dollars yet to run. But the emerging prospect of an earlier tightening in the U.S., the second pillar of global demand, may prove an unsettling combination for metals with less stellar credentials.
(All times Beijing unless noted otherwise.)
- China monthly 1-year medium-term lending rate due from today
- USDA weekly crop export sales, 08:30 EST
The mad scramble for iron ore over recent days is likely to show up in depleted inventories held at Chinese ports when figures are released Friday. The explosive rally above $200 a ton can’t be explained by physical market dynamics, according to CRU Group, which expects a pullback in prices.
|Copper -1.6% in Shanghai||Crude oil -0.6% in Shanghai|
|Iron ore -8% Dalian||Steel rebar -3.8% in Shanghai|
|Thermal coal -5.5% in Zhengzhou||Coking coal -5.8% in Dalian|
|Live hogs -1.1% in Dalian||Corn -2.4% in Dalian|
|Soybeans -1.5% in Dalian||Rubber -2.9% in Shanghai|
On the Wire
China’s economic activity rotated to consumption from production over a string of holidays in early May, according to high-frequency data tracked by Bloomberg Economics. With more people traveling during their time off, consumption picked up. Production sagged somewhat, but signs that construction remained robust bode well for the recovery extending into 2Q.
Asian cities face the greatest risk from environmental issues including air pollution and natural disasters, said research firm Verisk Maplecroft.
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The Week Ahead
Friday, May 14
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory
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