A 7.5% economic growth rate for China, the current target set by the government is not trivia for any country. Many countries would love to have this type of growth, but this is lower than the plus 8% that has been occurring since 2004 in China. The global implications of a slowdown in China growth will be significant, but do not seem to be embedded in market prices. Clearly, there has been softness in some key imports into China but it may not be reflective of a more modest growth. Interestingly, the impact on metals prices should be stronger while for energy which is a consumption good there may be less impact. The past growth has made China more energy dependent.
China produces 44% of all world steel production. Steel production is down to 1.7m tonnes per day from records of 2m tonnes per day. China steel demand is now below 5% growth on an annual basis. This is a significant change from the double digit gains over the last five years. Rolled steel have moved from a high of just over $800/tn to now just over $700/tn. Iron ore and coking steel inventories are starting to rise. The steel slowdown also is associated with a change in the mix within the economy. Real estate is being de-emphasized so the demand for steel will be even lower given the overall growth slowdown.
Even though the US is picking up growth and is a larger economy, China is the current marginal buyer and the driver of commodity prices. China demand is still the key for overall commodity price analysis.
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