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Will Beijing's economic adjustments cut short the bull market in commodity prices?

Article Excerpt
Metal commodity prices have reversed a decade-long downward trend, due to insufficient global supply, renewed global growth and the surge in demand from China, the world's fastest-growing economy. However, China's economic growth has been too hot at 9.1% last year and 9.7% in the first quarter of 2004. So, Premier Wen Jiabao and government bankers have imposed draconian credit rules and other "forceful measures" to slow manufacturing and construction, and curb GDP growth to 8%.

Beijing's efforts to cool the sizzling economy have reduced Chinese demand and prices for steel, copper, aluminum, nickel and other commodity metals. It also has whipsawed global commodity markets and depressed short-term world prices for most metals. Atop that, veteran metals market watchers have gone into a dither about potential long-term effect on global pricing.

After all, it was booming demand from China in the past year that had been the driving force behind the spike in commodity prices. Also, China suddenly has either overtaken or is approaching the United States as the world's biggest consumer of such materials as scrap metals, steel, alumina, aluminum, copper, iron ore, metallurgical coal, coke and iron ore.

China's voracious hunger for raw materials has created huge supply deficits--and explosive pricing--throughout the world. Chinese central bank authorities instructed national and local banks to curb lending as part of a string of measures to calm soaring investments in plants and equipment. Then, China's Cabinet specifically ordered a stop to new steel, aluminum and cement projects this year. The council also called for a review of ongoing investment projects that require metals and other building materials, such as commercial offices and shopping malls.

Adam Beamond at N.M. Rothschild & Sons Ltd. in Sydney, Australia, believes that "since China was a pillar of high base metal prices, the introduction of credit controls has unnerved the world metals markets." Kevin Crisp at Koch Metals Trading in London suggests that, "in many of the commodity markets, China has been a black hole absorbing huge quantities of commodities, but that's clearly not going to carry on forever."

Actually, it's no surprise that commodity metals markets and prices are shuddering at the thought of a...

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