China and Its Impact on Commodities in the Second Half of 2021

It is said that we are in a commodity supercycle and that China is an important factor in this process.


May 28, 2021 | AtoZ MarketsIt is not a secret, that the world’s second largest economy is the largest consumer of commodities globally, and as a major producer it requires superior supply to manufacture the large amount of goods it produces.

The world has always been affected by trade issues involving China in terms of commercial supply and demand, and a clear example of this was what happened a few days ago when the government reaffirmed in a statement that it would not allow any kind of speculation in the commodities market, and minutes later, the price of iron and steel plummeted by almost 7%.

We cannot ignore the fact that, although it is true that China cannot dominate the world prices of metals and raw materials, it can certainly affect them directly and concretely.

As far as the second half of this year is concerned, investors expect a sustained recovery in commodities, and a slowdown in China in this type of assets could affect the party that many analysts and traders are looking forward to.

Remember that the net long positions in most commodities globally are currently at record highs, so events in Beijing could mean that many of the bulls suffer a major setback.

China Is a Determining Factor in the Commodities Market


China has been the big driver of the last rallies in metals prices that occurred in 2011 and 2017, and it is also one of the big consumers of iron ore in recent years.

On the other hand, the United States is currently preparing to launch its ambitious infrastructure recovery plan as mentioned by President Joe Biden, and steel mills are producing at maximum capacity, hopeful that demand will remain high through the end of the year in the world’s top two economies.

Meanwhile, the use of other metals is also growing, such as copper, which is used in power plants and in the manufacture of new Chinese networks, as well as in the widespread demand in construction and in the manufacture of electric vehicles.

All this great boom could be affected if the Chinese government decides to use administrative tools to curb prices in raw materials, something that would undoubtedly generate an oversupply in the second half of 2021.

However, the strongest effects could be occur at the macroeconomic level, since, if China reduces the current pandemic stimulus, the producers and traders of metals and commodities would be left with full inventories.

But What Is the Supercycle ?


Growth in the financial trading sector


A supercycle can be defined as a prolonged period of booming demand for a wide range of commodities, which leads to an increase in their prices, but may be followed by a collapse in commodity demand and eventually prices.

Financial markets seem to be convinced that we are beginning to see the light at the end of the COVID-19 tunnel, and we are in a commodity super cycle.

Copper has risen 80% from its March 2020 lows to reach $8,500 per tonne, its highest level since 2012. and
Other metals, such as iron ore and nickel, are also rising in the markets, and Oil prices have also ridden this wave of rises, as brokers hope that the recovery brought by vaccines will succeed in boosting demand for fuels.

JP Morgan says commodity prices will also be bolstered by a weaker dollar and rising inflation.

Investors have to include commodities in their investment portfolios to protect them from inflationary risks, as commodity prices tend to rise in line with inflation.

The truth of the matter is that it is not yet clear whether or not we are in a super cycle, but what is certain is that commodity prices are growing strongly, but we still do not know for how long.

For now, the second half of the year has good possibilities to help this growth in commodities if the post-pandemic recovery is sustained.

Think we missed something? Let us know in the comment section below.

  1. Michael says:

    What is the influence of China on the food commodity market (pork bellies)? Thank you.

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