CHART: The impact of higher commodity prices on the profitability of Chinese producers

Courtesy of Macquarie Research, the chart below shows the proportion of loss making supply from Chinese commodity producers, comparing the proportion today to that a year ago.

With the exception of uranium which fell to the lowest level in 12 years in November, the proportion of loss making supply has fallen sharply, or been eliminated, for all other commodity groups. For clarity purposes, Mg Ore is manganese ore while PGM group stands for platinum group metals.

Clearly stronger commodity prices have assisted this reduction.

Macquarie says that with many commodities now trading at a level where a decent amount of marginal supply is making money, including latest Chinese capacity, a supply reaction from producers is expected in the first half of 2017.

The bank says that in certain cases this has already been seen, such as in iron ore and crude steel, “where domestic supply has been reacting in an efficient manner to price”.

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