China mobilizes to fight against rising commodity prices

“We will continue to organize the release of state stocks in the near future to ensure the stable functioning of the market,” said the National Development and Reform Commission, China’s leading economic planner overseeing its reserves of raw materials, July 6.

Global prices did not bow to Beijing’s will after its first round of auctions. London copper is up about 4% from mid-June and is still at its highest level in a decade after hitting a record high in May. Global demand for the red metal remains high in its many industrial applications such as electric vehicles and building construction. London aluminum is up 6% and zinc 4% from mid-June.

In other steps Beijing has taken in an attempt to dampen the market, Chinese regulators have warned national industry associations and producers against illegal activities, including market manipulation. The government said it was “also seeking advice on combating speculation.” Beijing is leading an investigation, started last month, into iron ore trading platforms and said it will also investigate coal prices, stepping up a month-long campaign to curb high fuel prices. The prices of both products remain close to records.

Chinese leaders have identified commodity markets as the cause of high producer price inflation in the world’s second-largest economy, which they say could hurt its economic recovery, while economists say it could fuel rising consumer prices both abroad and in the United States.

After US data last week showed consumer prices were up 5.4% in June from a year ago and stocks were approaching all-time highs, investors will take a closer look at the outlook growth with the release of US manufacturing data, Chinese trade data, and earnings from rail carrier CSX this week Corp.

, Halliburton Oil Services Company Co.

and the manufacturer Skanska AB.

Analysts believe that China may not have enough non-ferrous metals in its official stocks to influence prices enough in the long run. Metal auctions earlier this month, totaling 100,000 metric tons, each account for less than 6% of the monthly production of these metals in China.

Coal has increased despite Chinese measures. Steam coal, which powers power plants, has exceeded $ 110 per tonne in recent days in major Chinese ports, more than 20% more than at the end of April, as import volumes remain robust, according to official data. The Chinese economic planner said on Thursday he would free up coal reserves, and more in the future if necessary, in an attempt to bring prices down. Beijing has yet to lift a ban on importing coal from Australia, a major supplier, imposed late last year due to a diplomatic row with Canberra over the origins of the coronavirus and which could have a greater impact on prices.

“When commentators are unable to understand what is driving such a paradigm shift in pricing, they attribute it to speculators – a common pattern throughout history, which has never resolved the fundamental crunch,” Jeffrey said. Currie, head of commodities research at Goldman Sachs, in a May report. as Chinese regulators aimed to raise prices.

The fundamentals of the supply of major global commodities will remain tight in the second half of the year, analysts say. Western demand now plays as much as China in the influence of commodity prices, Goldman added. Global commodity producers had cut their capital spending by nearly half over the past decade, reducing inventories of industrial metals to their lowest level in two decades, just as current demand intensified.

Coking coal prices rose more than 20% at major ports last week from the end of April, the highest levels in more than a decade. Coking coal is used in steel mills, which are increasing production to meet demand amid a booming economic recovery.

Demand from Chinese steel mills is hampering the effectiveness of Chinese policy in another key aspect: iron ore prices in recent weeks have remained higher than at any time in the past 10 years. Prices have started to rise again in the past two weeks after a brief period of lack of steam.

Strong global demand in the construction and infrastructure sectors is not helping the Beijing campaign. Stainless steel producers, many of whom are based in China, still set some of their highest prices since 2016 for sales in Europe, and much of their production is captured domestically, Commerzbank said in a report. last week.

Despite its call to lower resource prices in general, Beijing has failed to help its own cause in at least one case. After world soybean prices briefly fell in late June from their highest levels in more than eight years, Chinese state buyers stepped in to purchase at least 336,000 metric tonnes – their biggest reservation in months – from US exporters, according to the US Department of Agriculture. Chicago soybean futures prices have started to rise again since then. The Chinese storekeeper did not respond to a request for comment.

Economists say China’s price war may ultimately not help a big cause of official anxiety: inflation.

“We see the risk that [Chinese] Consumer price inflation will continue to rise over the next few months, ”said Wood Mackenzie senior economist Yanting Zhou, citing rising prices for home appliances and cars.

—Ryan Dezember contributed to this article.

Write to Chuin-Wei Yap at [email protected]