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| Commodities to remain subdued as Chinese demand slows |
| Rajesh Bhayani / Mumbai Jun 25, 2009, 00:56 IST |
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Commodity prices are expected to be stable and is expected to ease in near future. “Institutional investors are at present booking profits in commodities and metals and crude oil are expected to remain stable or may fall in the next quarter,” said Markus Rosgen, managing director and head-regional strategy, Citi Investment Research. China’s demand is also showing signs of slowing down, which supports this view.
The observation is significant as in the first five months of the present calendar year most commodities have risen 40-60 per cent and have seen some correction of late. In the last two weeks S&P GSCI was down 4.63 per cent. The index has risen 35 per cent since January to early June.
The rise in metals and crude oil was attributed to China’s buying of commodities for building reserves. This buying is expected to subside now.
China’s May commodity trade data show that there has been a modest pull back in imports of some key commodities including iron ore and soybeans.
Barclays commodities said in a note that “in our view, this indicates an end to some of the aggressive stock-building by both private and government.”
China’s demand for base metals, in particular, is also expected to fall. China’s import of copper is rising as local market quoted at a premium of 7 per cent for quite a long time compared to LME prices and hence imports were attractive. These premia are also vanishing now, making no case for arbitrage, said Barclays.
China’s demand for crude oil is expected to continue. But, Markus of Citi said, “Fall in demand for crude oil from the US and Europe expected to fall faster that may keep crude oil prices under check.”
Hence, he believes inflation lead by these commodities may remain under control ‘near term prices of gold will also be moderate’.
Despite expectations of moderation of Chinese demand for metals, May data for imports released by China say that Chinese coal imports were at a record high at 9.4 million tonnes. Net crude oil imports also stayed strong, hitting their second highest level ever.
Barclays said, “To some extent higher coal imports reflect a decline in local supplies because of low prices, whilst in oil high levels of refined product exports somewhat offset the strong crude oil import numbers. Overall, however, the trade figures still support the view of a rising energy demand in China.”
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