Research sentiment is starting the turn against the huge commodity run we’ve had as of late. Ambrose Evans Pritchard highlights how multiple analysts from major firms are warning that credit restrictions in China, aimed at cooling the country’s economy, will annihilate many commodities’ number one demand growth driver:
Beijing is likely to slash growth in spending on infrastructure from 120pc last year to just 7pc this year. Deutsche expects China’s central bank to cut loan quotas by almost a quarter to 7.5 trillion yuan ($1.1 trillion) this year, raise rates, and tighten reserve rules to choke inflation, while local authorities take their own measures to curb the property boom. Lead, zinc, copper, and nickel are all highly leveraged to China’s building cycle.
The Royal Bank of Scotland echoed the concerns, saying China has kept the prices of raw materials buoyant by sucking in the world’s supply. “A hefty proportion of these imports have undoubtedly been stockpiled, some by private speculators. We do not believe that much unreported stock has yet been eroded,” said the bank’s commodity team, Nick Moore and Stephen Briggs.
Many analysts remain extremely hedged in their wording, saying that a pull-back in commodity prices might only be temporary, with ‘sunlit uplands‘ in the future, but let’s read through the defensive wording — Commodities are in trouble should credit curbs slow-down China’s commodity-consuming infrastructure growth. You can read more analyst views at the Telegraph here.
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