China lowers world commodity prices; Australian iron ore exports hit hard
Industrial commodity prices suffered steep losses in China and abroad on Monday, after Chinese officials, the global factory and the world’s largest commodity consumer, stepped up a top-down campaign to curb the price spike who have already put pressure on factories and businesses. and further threaten to derail China’s hard-fought economic recovery from the COVID-19 pandemic.
The latest effort by Chinese authorities to step up the crackdown on what they call excessive speculation in commodity markets came after warnings and repeated actions by local governments and industry bodies over the past few weeks failed. failed to bring prices down to a “reasonable” range. , and the risks posed by soaring prices to the Chinese economy continue to emerge, analysts noted. To a rare extent, five Chinese agencies warned large companies on Sunday not to price abuse.
Further underscoring China’s commitment to tackle soaring commodity prices, Premier Li Keqiang on Monday inspected a major port in Ningbo, east China’s Zhejiang Province, and heard reports on the trend of world commodity prices.
During the tour, Li also highlighted the impact of high commodity prices on factories and called on the port to improve import and storage operations, according to an official statement.
While China’s efforts are aimed at stabilizing domestic commodity markets to avoid potential risks, they could also help end a multi-month rally in global commodity prices, analysts said. Major suppliers, especially Australia – which has seen record prices for its main export to China, iron ore, despite losses in other exchanges – could feel the pain, they added. Australia’s “profiteering” days can be marked, an expert said.
Repression in China
Global and domestic commodity markets are already taking inspiration from growing Chinese repression. On Monday, prices for most commodity futures fell sharply in China, dragged down by more than 5% drop in iron ore. The prices of several other commodity futures, including hot-rolled coils, fell more than 3%. Global industrial metal prices also fell on Monday, with three-month copper prices on the London Metal Exchange falling 0.3% and aluminum down 2.3%, according to Reuters.
Monday’s prolonged losses followed the latest signal from Chinese officials that they are stepping up efforts to curb the surge in commodity prices. On Sunday, the National Development and Reform Commission (NDRC), the main economic planner, along with four other departments held a meeting with industry leaders and vowed to severely punish excessive speculation, abuses pricing and other violations that have contributed to the price increase.
Regulators would adopt “zero tolerance” for illegal activity and tighten the regulation of anomalous transactions and malicious speculation, the NDRC said in a statement.
The move came after the State Council, the Chinese cabinet, paid close attention to rising commodity prices in two consecutive executive meetings, calling for effective measures to stabilize commodity markets. . The intensified efforts also followed warnings and earlier efforts by some local authorities and industry bodies that failed to bring prices down, leading to increased efforts by higher authorities.
“With the world’s largest manufacturing sector, China has suffered the brunt of soaring commodity prices. The impact on the real economy is very large as businesses and consumers are about to be affected, ”Liu Xuezhi, senior macroeconomic analyst at the Bank of Communications, told the Global Times on Monday, adding that nothing less than China’s hard-fought economic recovery. of COVID-19 is at stake.
Soaring commodity prices have already pushed up the costs of many factories significantly, especially small and medium-sized businesses. There are growing signs that rising commodity prices could push up consumer prices, with some companies raising prices for a wide range of products, including refrigerators, washers and bicycles, citing rising costs.
In April, factory gate prices in the country jumped 6.8% year-over-year, the fastest pace in more than three years, raising fears that high commodity prices raw materials can slow down economic recovery and push up consumer prices.
The fact that rising commodity prices threaten China’s main growth engines and pose serious risks to the economic recovery has prompted a series of efforts from senior officials, experts noted. Warning signs of global inflation, especially in the United States, which could also have a serious impact on China’s economic operations, also heightened the urgency for Chinese officials to act quickly, added. the experts.
“Rising commodity prices have affected many aspects of people’s daily lives,” Ren Zeping, dean of the Evergrande Research Institute, said in an interview, noting that while the global economic recovery has The reason for the surge in prices is on the supply side and the speculation of the market. For example, the COVID-19 pandemic among major suppliers such as Brazil and India has also cut supplies, Ren noted.
As commodity prices are set by the world market, as the world’s largest consumer, China’s crackdown on speculation and other market manipulation could also send frightening waves across the globe, said experts.
“Certainly, China’s actions will have a significant impact on global commodity prices,” especially exports which are heavily dependent on Chinese demand, Liu said.
Australia’s iron ore exports, which have massively benefited from sky-high prices for its main export, could be among the hardest hit, prompting Canberra officials to continue their relentless provocation against China.
“Due to unreasonable global iron ore prices, Australian iron ore exporters have benefited greatly. However, such profits will not last very long, ”Chen Hong, professor and director of the Center for Australian Studies at East China Normal University, told the Global Times on Monday.
Australia is the world’s largest producer of iron ore and the largest supplier to China. In the first four months of the year, China imported 229 million tonnes of iron ore from Australia, nearly 60% of its total imports, according to Wang Guoqing, research director at Beijing Lange Steel Information Research. Center.
This alone has helped save Australia’s trade amid a strained relationship with China that has impacted trade in many areas, according to experts and media. In April, for example, Chinese imports from Australia increased by more than 49.3 percent, mainly due to high prices for iron ore.
While China’s dependence on Australian iron ore will likely continue for the foreseeable future, despite its efforts to diversify its sources, a sharp decline in iron ore prices would result in heavy losses in export revenue for Australia, which is already experiencing a decline in trade with China in areas such as wine and seafood, experts noted.
For example, iron ore prices fell about $ 9.25 per tonne last week after the State Council meeting; this could translate into a loss of over $ 2 billion in additional revenue for Australia based on the amount of exports to China in the first four months of 2021. If prices fell by around $ 200 a ton last week to around $ 60 a ton over the same period last year, revenue losses could have exceeded $ 32 billion.
Reflecting the potential impact on Australia’s iron ore exports to China, the stock prices of Australia’s major iron ore producers fell on Monday following China’s latest efforts to contain prices. Rio Tinto shares in Australia fell 1.46% on Monday, while BHP Group shares fell 1%.
In addition to the impact of lower prices, China’s dependence on Australian iron ore will decrease over time as the country strives to expand its sources of supply, have said experts.
“China’s diversified import system will have a major impact on reducing Chinese imports of Australian iron ore,” Wang told the Global Times on Monday, noting that the share of Australian iron ore in the country’s total imports. China is already down slightly.
Australia’s share of China’s iron ore imports fell below 60% for the first time in the first four months of 2021 and, as China continues to diversify its supplies, it could fall further to less than 50% over the next few years, experts said.
Source: Global Times