Daily Management Review

Chinese Warning Against Price Hikes Cause Fall In Global Metal Prices


Chinese Warning Against Price Hikes Cause Fall In Global Metal Prices
Following a warning by Chinese authorities to commodity companies in the country about pushing up prices, there was a fall in the prices of industrial metals globally. The companies dealing in commodity was urged to maintain "normal market orders" by China's National Development and Reform Commission (NDRC).
In recent times, there has been a surge in metal prices with increased demand as major economies are emerging from the pandemic and are opening up. The metals whose prices were most affected included three month copper and aluminium.
But after the warning from China, there was a 1.6 per cent drop in the futures of copper to  $9,881 per metric tonne and a 1.09 per cent in the price of aluminium to $2,370 per metric tonne at the London Metal Exchange.
Those Chinese companies that were "collectively summoned" on Sunday for interviews included crucial Chinese companies dealing in steel, iron and aluminium, according to a report by state media outlet The Global Times. A statement by the NDRC was also quoted in The Global Times report in which the Chinese agency stated that the continuous and drastic increase of a handful of commodities was the reason for holding the meeting.
Announcing that it would curb "unreasonable" prices, last week China had already said that it would step up measures related to commodity supply.
There was also caution among commodity traders following a statement from The White House on Friday that it had decided to slash down on its expenditure for infrastructure projects from $2.25tn to $1.7tn. There are assumptions that there could be a drop in the demand for iron ore and copper because of plans of slashing of expenses in broadband, roads and bridges. However there were also estimates of a further slashing on infrastructure investments because the proposed slash in spending was dismissed by US Republicans who said that it was insufficient for a deal.
With many of the major economies easing their lockdown measures and other restrictions imposed to curb the spread of the pandemic this year, there has been an increase in demand for the raw materials needed for industries - including copper, coal, steel and iron ore, consequently resulting in an increase in global prices.
Demand for commodities has also shot up because of large economic stimulus measures by various governments and central banks across the world.
The biggest user of raw materials globally is China, also often referred to as the 'world's factory'. There was an unexpected surge in the exports of the country in April because of a speedier than expected recovery of the United States economy from the pandemic which spurred demand. At the same time, factory activity had stalled in India with the country struggle to contain a deadly second wave of the pandemic which also helped in boosting demand for Chinese goods globally.
In April there was a more than 32 per cent surge in China's exports in dollar terms compared to the same month a year ago to almost $264bn. Imports into the country also grew at the fastest pace in more than a decade in the same month – surging by 43 per cent year on year.