China Sends Early Warning For Commodity Disaster

By John McSwiggan , May 27, 2021

China Sends Early Warning For Commodity Disaster

By John McSwiggan , May 27, 2021

#Education Finance ForeignPolicy

With the growing demand for commodities, China sends a warning for a possible economic disaster. Financial experts have stated that the world’s “economic miracle” is experiencing a deep downturn. This is in spite of the country’s best efforts to lift its economy.

One of the primary concerns for the economy is the supply and demand for its commodities such as copper, aluminum, iron, steel, and nonferrous metals. Early this month, investors saw that prices for iron ore plunged by 9.5%. The sudden downturn came after the prices for metals reached historical highs with iron costing $237.57 per tonne. 

What’s Causing the Downturn? 

Experts believe that the Chinese government is partly to blame. Since August, the country’s sends out a warning of an economic slowdown as a result of the coronavirus pandemic. To lift the economy, the government encouraged infrastructure projects.

 They even offered credit and state-directed spending sprees. With this, the government’s aggressive infrastructure projects resulted in the demand for commodities, particularly steel. 

China warns companies cannot keep up with the demand for metals, particularly steel

The problem is that companies cannot keep up with the demand for metals as their factories close down because of health restrictions. In addition, the supply becomes increasingly strained as other economies start to bounce back from the pandemic. 

To stop the prices from skyrocketing, China’s National Development and Reform Commission issued a “zero-tolerance” policy for anyone who wants to take advantage of the situation. 

The announcement comes after the Commission held a meeting with industry leaders. During the meeting, the government urges companies to fulfill their social responsibility to maintain the prices of the commodities. These actions include “reaching agreements to implement monopoly, spreading false information, driving up prices”.

In addition, the government also warns companies against hoarding. 

In a statement, Ronnie Cecil, principal analyst for metals and mining research at S&P Global Market Intelligence, believes that the lack of supply might further weaken the Chinese economy. “These factors, along with a recovery in ex-China demand, [are] expected to drive the global seaborne trade balance into a deeper deficit in 2021,” Cecil said. 

Other Economic Efforts

Aside from encouraging infrastructure projects, the Chinese government also offered tax cuts to lift the economy.

However, the market continues to slow down following a dip in November. The incident is the lowest point in the country’s economy since 2016. Even its retail sales saw their lowest point in more than 15 years. 

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