China sends warning signal that could shake global commodity boom

One of the pillars of the strong commodity rally this year – the Chinese demand – could be shaken. The Beijing government was able to recover its economy from the impact of the pandemic mainly through the expansion of credit and the boom in the construction sector using state aid, which relied on raw materials from around the world. The largest consumer in the world, China spent US$ 150 billion on oil, iron ore, and copper only in just the first four months of 2021. The amount exceeds the amount spent in the same period last year by US$ 36 billion, reflecting price increases and a recovery in demand.

With global commodities at record levels, Chinese government officials are looking to cool prices and reduce some speculation that drives markets. To avoid inflating asset bubbles, the People’s Bank of China has also limited the flow of resources to the economy since last year, albeit gradually to avoid hampering growth. At the same time, financing for infrastructure projects shows signs of slowing down.

April economic data suggests that both China’s economic expansion and the credit boost – new credit as a percentage of GDP – may have peaked, which threatens the rally. The most obvious impact of China’s deleveraging would be on metals linked to spending on real estate and infrastructure, such as copper, aluminum, steel, and its main input – iron ore.

Source: Valor Econômico

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