Business Standard

Bad news for commodities as China likely to slow further

IMF has cut its forcast for the country's growth from 8% to 7.75%

Related News

For commodity traders, there is more bad news in store. The International Monetary Fund (IMF) has cut its forecast for China’s growth from earlier estimates of 8 per cent to 7.75 per cent for 2013. This follows weak data coming from the country. The biggest impact of a slowing China will be felt in the ‘hard commodities’ (mainly metals) markets.

China was the reason for a major bull run in these commodities till 2007 on account of its huge requirement and spending in the run-up to the Beijing Olympics. However, a lull in spending by the country resulted in a downward slide in international prices of these hard commodities.

China’s influence on the oil and agro markets is not as much as it is on the hard commodities market. Though its population is the highest consumer of and rice, it is also a major producer. The country, in fact, has been a net exporter in some years. The increase in domestic oil supply in the US has had a balancing effect on the increased demand from China, which is now its largest consumer.

But when it comes to hard commodities, China has a much bigger role to play. Since 2002, the country has been accounting for almost all of world’s consumption growth in and tin, and half the world’s growth in consumption of steel, and while its consumption growth in and has been more than world growth.

China consumes 40 per cent of all copper smelted in the world, 45 per cent of produced and 40 per cent of aluminium. Thanks to its construction activity, the country consumes 55 per cent of total cement produced in the world. A slowing economy does not augur well for producers or traders in these commodities. Inventories have been pilling up in most of the producing countries, capacity utilization continue to be low as more factories are being moth-balled till situation improves.

Recent results by metal producers also hint at a continued slowdown. None of the global players in steel, copper or iron ore see better prospects for world economy in the current calendar year.

For Indian producer a slowing China is all the more reason to be worried because the nearest and next port of destination that can absorb huge quantities is India. Increasing imports have led to declining margins for Indian companies in the recently announced quarterly numbers.

The only possible saviour is a weakening rupee. With China out of the way the most influencing factor for Indian commodity traders will be the rupee.

Read more on:   
|
|
|
|
|
|
|
|
|
|
|
|

Bad news for commodities as China likely to slow further

IMF has cut its forcast for the country's growth from 8% to 7.75%

For commodity traders, there is more bad news in store. The International Monetary Fund (IMF) has cut its forecast for China's growth from earlier estimates of 8 per cent to 7.75 per cent for 2013. This follows weak data coming from the country. The biggest impact of a slowing China will be felt in the 'hard commodities' (mainly metals) markets For commodity traders, there is more bad news in store. The International Monetary Fund (IMF) has cut its forecast for China’s growth from earlier estimates of 8 per cent to 7.75 per cent for 2013. This follows weak data coming from the country. The biggest impact of a slowing China will be felt in the ‘hard commodities’ (mainly metals) markets.

China was the reason for a major bull run in these commodities till 2007 on account of its huge requirement and spending in the run-up to the Beijing Olympics. However, a lull in spending by the country resulted in a downward slide in international prices of these hard commodities.

China’s influence on the oil and agro markets is not as much as it is on the hard commodities market. Though its population is the highest consumer of and rice, it is also a major producer. The country, in fact, has been a net exporter in some years. The increase in domestic oil supply in the US has had a balancing effect on the increased demand from China, which is now its largest consumer.

But when it comes to hard commodities, China has a much bigger role to play. Since 2002, the country has been accounting for almost all of world’s consumption growth in and tin, and half the world’s growth in consumption of steel, and while its consumption growth in and has been more than world growth.

China consumes 40 per cent of all copper smelted in the world, 45 per cent of produced and 40 per cent of aluminium. Thanks to its construction activity, the country consumes 55 per cent of total cement produced in the world. A slowing economy does not augur well for producers or traders in these commodities. Inventories have been pilling up in most of the producing countries, capacity utilization continue to be low as more factories are being moth-balled till situation improves.

Recent results by metal producers also hint at a continued slowdown. None of the global players in steel, copper or iron ore see better prospects for world economy in the current calendar year.

For Indian producer a slowing China is all the more reason to be worried because the nearest and next port of destination that can absorb huge quantities is India. Increasing imports have led to declining margins for Indian companies in the recently announced quarterly numbers.

The only possible saviour is a weakening rupee. With China out of the way the most influencing factor for Indian commodity traders will be the rupee.
image

Read More

Nickel up 0.4% on firm spot market

Nickel prices moved up by Rs 2.90 to Rs 840.20 per kg in futures trading today as speculators created fresh positions, driven by a firming trend at ...

Recommended for you

Advertisements

Quick Links

Market News

Sensex ends above 27,900 amid volatile session

Provisionally, the Sensex gained 134.71 points to end at 27,944.06 and the Nifty rose 27.80 points to close at 8,448.80

Sangam (India) zooms over 50% in four days on stake hike by promoter

The stock is currently trading at its record high of Rs 125 and has rallied 54% from Rs 81 on May 19.

Sagar Cements surges after turnaround in Q4

The stock surged 16% to Rs 408 after reported net profit of Rs 21.70 crore in March quarter against loss of Rs 11.36 crore in the year ago ...

SBI pares early gains post Q4 results

The stock surged 5% to Rs 305 after reported 23% year on year jump in standalone net profit at Rs 3,742 crore in March quarter.

Markets hold gains amid firm global cues

Sensex has soared 214 points to trade at 28,023 levels while the Nifty has surged 55 points to quote at 8,476 mark

 

Back to Top