China is the world’s largest producer of steel, but it has been struggling with a slowing economy and rising prices. The government is trying to cool the market by limiting production.
China Steels Itself for Fight to Cool Rising Commodities Prices is a blog post about the Chinese government’s efforts to cool rising prices. The recent record stock rally ignored Wall Street’s phobia about optimism.
HONG KONG, China— China’s multipronged effort to rein in increasing commodity prices pits the world’s biggest consumer of several key commodities against global market forces. Victory is elusive, as shown by the prices.
Chinese officials aren’t giving up just yet, indicating that they intend to further up steps taken in recent months to calm commodities markets that have been boosted by global economic recovery. Beijing auctioned state stocks of copper, aluminum, and zinc reserves in early July, adding to checks of pricing platforms and wide cautions against market speculation. The state stockpile manager said that it intends to sell more.
The National Development and Reform Commission, China’s top economic planner in charge of its commodity reserves, stated on July 6 that “we will continue to arrange releases of state stocks in the near future to maintain the steady functioning of the market.”
After the first round of auctions, global prices have not succumbed to Beijing’s wishes. After ebbing off a record in May, London copper is up around 4% since mid-June and is at its best levels in a decade. The red metal’s global demand remains strong across a wide range of industrial uses, including electric cars and building construction. From mid-June, London aluminum is up 6%, while London zinc is up 4%.
Chinese authorities have also cautioned local industry organizations and manufacturers against unlawful actions such as market manipulation as part of Beijing’s efforts to cool the market. The administration is also “seeking views on how to fight speculation,” according to the government. Beijing has started an investigation into iron-ore trading platforms, and has indicated it would also look into coal pricing, intensifying a months-long effort to bring down the price of the fuel. Both commodities’ prices have remained around all-time highs.
China’s leaders have pointed to commodity markets as a source of high producer price inflation in the world’s second-largest economy, which they fear will stymie the country’s economic recovery, while economists say this could feed into higher consumer prices in other countries, such as the United States.
Following consumer prices increasing 5.4 percent year over year in June, and equities lingering around all-time highs, investors will get a deeper look at growth prospects this week with the release of US manufacturing data, China trade data, and profits from rail carrier BNSF.
CSX Corp.
, a company that provides oil-field services
Halliburton is a company that produces oil and gas.
and constructor
Skanska
AB.
According to analysts, China’s declared stocks of nonferrous metals may not be sufficient to influence prices in the long run. The metal auctions earlier this month, which totaled 100,000 metric tons, account for less than 6% of China’s monthly metal production.
Despite the Chinese restrictions, coal prices have increased. Steam coal, which fuels power plants, has just topped $110 per metric ton at major Chinese ports, up more than 20% from late April, as import quantities continue strong, according to government statistics. China’s chief economist said on Thursday that the country would release coal stockpiles, as well as more in the future if required, to attempt to keep prices down. Due to a diplomatic spat with Canberra over coronavirus origins, Beijing has yet to lift a restriction on coal imports from Australia, a key supplier, imposed late last year, which may have a larger effect on price.
“When observers are stumped as to what is causing such a dramatic change in pricing, they blame speculators—a pattern that has never addressed underlying tightness,” says the author.
Goldman Sachs is a financial services firm.
commodities research director
Currie, Jeffrey
According to a May study, Chinese authorities are targeting increasing prices.
According to experts, supply fundamentals in major global commodities will remain tight in the second half. According to Goldman, Western demand now influences commodities prices just as much as Chinese demand. Over the past decade, global commodities manufacturers cut capital expenditure by almost half, reducing industrial metal stockpiles to two-decade lows just as the current demand surge accelerated.
Copper is still in great demand throughout the world.
Photo:
Getty Images/Barcroft Media
Last week, coking coal prices at major ports were up more than 20% from late April, the highest in more than a decade. Steel mills, which are increasing production to satisfy demand amid a strong economic recovery, use coking coal as a feedstock.
The efficacy of Chinese policies in another important area is being hampered by demand from Chinese steel mills: In recent weeks, iron-ore prices have remained higher than at any time in the previous ten years. After a short period of stalling, prices have started to climb again in the past two weeks.
Beijing’s effort is being hampered by strong worldwide demand in the building and infrastructure sectors. Stainless-steel manufacturers, many of which are located in China, are maintaining some of their best rates for export to Europe since 2016, and most of their production is being consumed locally.
Commerzbank
in a study released last week.
Beijing hasn’t helped its own cause in at least one instance, despite its calls for lower resource pricing in general. According to the US Agriculture Department, when global soybean prices temporarily fell from their highest levels in more than eight years in late June, Chinese state purchasers stepped in to acquire at least 336,000 metric tons from American exporters, their largest booking in months. Since then, Chicago soybean futures have continued their upward trend. A request for comment from China’s stockpile was not returned.
According to economists, China’s pricing war may not even assist a major source of government concern: inflation.
“We definitely see the danger that [Chinese] consumer price inflation will continue to increase in the coming months,” said Yanting Zhou, a senior economist at Wood Mackenzie.
On July 13, shipping containers were seen at a port in Zhejiang Province. China’s authorities blame excessive producer price inflation on commodities markets.
Photo:
VCG/Getty Images/Long Wei
—This article was co-written by Ryan Dezember.
Chuin-Wei should be contacted. Yap may be reached at [email protected].
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China is steeling itself for the fight to cool rising commodities prices. The country has already implemented a number of measures that are expected to help to reduce demand and stabilize commodity prices. Reference: didi problem.
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