Growth in China’s commodity imports increased in April for key commodities including crude oil, copper, iron ore and soybeans.
The Chinese economy is stabilising which removes an important downside risk to commodity prices.
It should add further support to commodity prices and especially base metal prices.
The fragile Chinese economy has been a worry for commodity markets over the past year. However, the Chinese economy has recently begun to show signs of stabilisation and this development was underpinned by the release of April’s foreign trade data this morning, which surprised on the upside showing decent improvement.
Commodity markets should embrace the fact that a part of the improvement in China’s imports was due to rising imports of commodities. In April, growth in China’s imports of key commodities such as crude oil, copper, iron ore and soybeans all picked up. That growth in China’s commodity imports is reaccelerating bodes well for China’s overall demand for commodities.
That the shape of the Chinese economy is beginning to improve removes a key downside risk to commodity prices – especially base metal prices, which have been particularly sensitive to the development in Chinese demand. That alone should be supportive for commodity prices. However, even though recent newsflow from the Chinese economy has had a more positive flare to it, we do not yet see indications that a clear turnaround is imminent. Growth will probably remain subdued and below the government’s 7.5% target this year. That will limit the potential upside for commodity prices.
The news from China has been received well by commodity markets this morning. Base-metal prices have inched higher, as have soybean prices (including US Soybeans products) and the Crude Oil price is fairly stable despite the first signs of an easing of the Ukraine-Russia conflict. Nickel is a story of its own. It continues to rally and the price is up more than 4% today and now at the highest level in over two years. The good news from China naturally plays a role here as well, but recent supply disruptions in New Caledonia along with the Indonesian mineral ore export ban are the dominant factors behind the surge.
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