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OPINION

So China is reducing stimulus, what now?

So China is reducing stimulus, what now?
May 19, 2021
So China is reducing stimulus, what now?

This is seen as a portent for a commodities slowdown because it means that the government is slowing stimulus. Inflation and regulation fears have also contributed to iron ore and copper dropping back from their $220 (£156) per tonne (t) and $10,725/t respective highs in the second week of May. 

Given China’s dominance of metals demand, this is no surprise. But ask anyone trying to get their hands on cement or wood in the UK or the US about a sudden cooling-off of commodities markets and you’d bring on a laugh. This is more than a metals trends as well, with foods like soya and corn looking extremely expensive and petrol prices up as well. 

This is not a clean comparison because of the scale of China’s needs. But those monitoring commodity trends are seeing demand pick up ex-China as well (ex-China is the industry term for everything but China, showing the country’s singular importance). 

Last week, the chief economist at trading giant Trafigura, Saad Rahim, told a Jefferies event demand would pick up for metals outside China in the long term, covering for Chinese demand slowing. He picked miners as the winners out of this, compared to the manufacturers who will have to pay the higher prices. 

Miners therefore have plenty of profits still to come, especially those who can deliver local, less carbon-intensive supply.