China’s Industrial Slowdown Could Kill The Commodity Rally

Chinese factory growth was at its slowest in July in 15 months

One of the biggest drivers of the surge in metals prices this year, the world’s top commodity consumer China, is showing signs of a slowdown in demand, which could drag down copper and iron ore prices for the rest of the year after a blistering rally in the first half.

Chinese factory activity growth slowed down to the smallest in 15 months, imports of copper and iron ore are also slowing down amid surging prices and curbs in China’s steel manufacturing, while authorities are releasing metals stocks from reserves to cool rallying prices which raise manufacturing costs. All these factors from the past few weeks are bearish for the Chinese demand—and as a result, imports—of metals such as iron ore, copper, zinc, and aluminum, Reuters columnist Clyde Russell notes.

Although analysts say that slower Chinese demand doesn’t necessarily mean lower commodity prices, because of tight global markets, China may not be a key driver of metals demand through the end of 2021. That’s because of slowing factory growth, authority-mandated caps on steel manufacturing, and the release of tons of metals from China’s reserves. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) showed this week that Chinese factory growth was at its slowest in July in 15 months, also because of high raw material prices, especially for industrial metals.

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