Tuesday, October 18, 2011

China slowdown hits commodity prices

China economy grew at 9.1 percent in the third quarter which is the slowest in two years. This is down from the 9.5% growth last quarter and lower than the median estimates of 9.3 percent. While there has been a market reaction, 7% is the likely level which is significant slowdown for China.  

Pressure on small and medium enterprises (SME’s)companies which have been an engine has been increasing. There are reports that they are starved for capital which much easier to be obtained by the large state owned enterprises. There is also softness in housing and real estate. Property companies are feeling there is tighter money. While there has not been a significant fall in real estate, there is more selling pressure as inventory is sold and price cutting is occurring.
There are export driven problems because Chinese exports are tied to ISM  numbers in the EU and the US and with developed market weakness  there is a link with China. EU is likely in a recession and the US is still gong to be below trend. China will see weakness as this slows exports. Domestic China retail sales is less sensitive to export declines. To maintain the high growth, domestic sales will have to improve relative to export growth.
Steel and coking coal prices have turned down with demand slowing Oil and copper prices also are down close to 30%. If the great commodity buyer slows its purchases, there will be a corresponding decline in global commodity prices.

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