China And Commodities Prices: The Slow-Motion Train-Wreck

Business, China, Company Strategy, Economics, Oil & Gas

By John Richardson

OIL prices are now in bear-market territory with commodities prices in general at a 13-year low, according to the latest Bloomberg Commodities index which follows 22 different commodities.

488x-1

Not surprisingly, therefore, the share prices of mining and other commodity-producing companies have fallen to their lowest levels since the depths of the 2008 Global Financial Crisis.

This is largely to do with China, as most commentators are belatedly waking up to the fact that all that glitters is not gold – i.e. you cannot believe China’s official GDP numbers.

Growth in lending, electricity consumption and freight traffic are as a result some of the statistics that are being much more closely monitored, as should have been the case years ago, in an attempt to get a real gauge on growth in China.

The latest data on these three key measures tell us the following:

•Rail freight traffic was down 11% in January– May versus 2014.

•Total lending was down 15% in H1 versus 2014, with shadow lending down 50%.

•And electricity consumption, was up just 1.2% in H1. This represented the lowest growth in electricity consumption in 19 years as nine provinces saw negative growth. These are no doubt provinces heavily dependent on manufacturing industries that are severely oversupplied, and so are being restructured.

China-elec-Jul15

You are thus increasingly seeing estimates of real GDP growth in China, as opposed to the fictitious official numbers, in the low single digits.

And because China is, of course, the biggest global driver of demand for commodities, you have part of your explanation for lower commodities prices.

This has been a slow-motion train-wreck as it has taken several wasted years for people to wake up to what’s happening with China’s economy.

The flipside of the same coin is that vast oversupply in commodities, including in oil and iron ore, have been built to serve wrong estimations of Chinese growth.

Another reason for oversupply in oil and gas are the wholly misguided policies of the US fed. These policies are now set to be unwound through an imminent increase in US interest rates. The dollar is thus strengthening, which is exerting further downward pressure on commodities prices.

Add all of this together and this explains why the Bloomberg index was this week at a 13-year low.

This all points to what I have been warning about since last year: That we are heading into an extended period of deeply entrenched global deflation.

PREVIOUS POST

Serving The Needs Of The Vulnerable Poor Majority

22/07/2015

By John Richardson HERE is another way of looking at the important new Pew Resea...

Learn more
NEXT POST

The Fall In Apple"s Share Price And China's "Middle Classes"

26/07/2015

By John Richardson SOMETHIING very important happened last week when investors w...

Learn more
More posts
Global polyethylene oversupply, the highest in 19 years, hasn’t gone away
03/07/2020

By John Richardson BRENT crude futures surged by 80% during the second quarter and enjoyed their bes...

Read
China could be in complete polypropylene self-sufficiency by 2022
28/06/2020

By John Richardson SORRY to labour the point but this comes from a genuine concern for the readers o...

Read
Asian polyethylene price recovery faces multiple challenges
25/06/2020

By John Richardson THERE are reports of significant cuts in Middle East polyethylene (PE) operating ...

Read
China’s long-term ambition for paraxylene self-sufficiency seems close to being realised
21/06/2020

On Friday, I examined how China’s paraxylene (PX) net imports could fall to as little 8m tonne...

Read
China’s big declines in 2020 PX and PP imports: the impact on its major trading partners
18/06/2020

By John Richardson CHINA’S refineries and petrochemicals plants came roaring back to almost fu...

Read
Paraxylene demand collapses as higher China production threatens 6m tonne fall in imports
15/06/2020

By John Richardson DON’T SAY I didn’t tell you that a decline in stock markets would happen. The...

Read
Coronavirus will severely damage the developing world unless we take the right steps
12/06/2020

By John Richardson IT IS a fantastic achievement. “Over the last 25 years, more than a billion peo...

Read
Main Street versus Wall Street and the crisis in the developing world
10/06/2020

By John Richardson RISING equity and oil markets do not necessarily point to a V-shaped recovery. I ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more