Lower China GDP Growth Means Lower Commodity Prices in 2013

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Continued from Part One.

While August was weak for crude oil imports, will iron ore imports show a different story?

Although iron ore imports surged to 65.01 million tons in September, the highest since January 2011, this could be due to spot iron ore prices falling from $137 per ton in late June to $86.70 per ton in early September, prompting mills to stock up on cheap iron ore ahead of the Golden Week holiday in October.

Coincidentally, Australia’s Port Headland is reported as seeing a 9.5 percent decline in new shipments in September, suggesting October’s imports into China may be significantly lower. Copper likewise may have seen some pull-forward effect ahead of the holidays and with the rise in prices since August, is unlikely to be repeated at these levels in October’s figures.

The Chinese are not known for buying at high prices if demand and confidence is weak.

Indeed, although some have attributed the Q3 rise in metals prices as down to growing confidence in China, Reuters lays the fault firmly at the door of central banks, saying the LME index of six major industrial metals — which climbed 16 percent from mid-August to mid-September as central banks announced further quantitative easing (QE) — has since shed 4 percent as the euphoria has worn off but the economic and political problems remain.

Chinese GDP data, due to be released next week, is expected to show that economic growth slowed for a seventh straight quarter in the July-September period to 7.4 percent, the weakest level since the depths of the global financial crisis.

While Western economies can only dream of such growth rates, a slower rate of growth in China coupled with lower levels in India, Brazil and other emerging markets will equate to, at best, a stagnant start to 2013 — if not the year as a whole.

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