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Jul 2013 - Commodity Prices

  • Commodity prices - China , blah, blah - BUT !?
  • I just have 3 devil's advocate (/observation) questions or is it a question in 3 parts.
  • At the China Mining Conference in Tianjin in November 2012, there were two very clear messages, namely : "why should we (China) pay for our own demand (commodity prices)" ? and according to the Chinese presenters "commodity prices are going to be weak in 2013" (in defiance of western presenters who were overall more bullish, based on the US recovery etc) [for more detail see pages 8 and 9 of the Goode News column in the April 2013 issue of Paydirt, or the "Nov 2012 - China Visit" Comment on www.eagleres.com.au]
  • The Chinese presenters were right, so :
  • 1. Did the Chinese presenters know that despite the official view of 8%pa GDP growth, that a policy change was coming and China's GDP from 2013 was likely to be re-stated as 7% to 7.5%, and that perception could cause commodity prices to weaken ? - which they have.
  • 2. BUT, that there was underlying demand as has been illustrated by MMG's JQ 2013 release on 23 July (available from its website - it has a Hong Kong Listing) stating that China's demand for copper cons has been firm with imports in the first 5 months up by 30% (yoy) and copper cathode falling in bonded warehouses by 50% to ~400kt at the end of June 2013, such that premiums have risen to $200/t (levels last seen in 2009). Also that China's zinc con imports for 2013 so far have been the same as 2012, and the global demand for zinc has been firm.
  • How or why ? - quite simply from 2 sources, namely :
  • Firstly that GDP numbers are a broad guideline (as stated by a China-based presenter at the Sydney RIU conference in May 2013 "why are you focused on the GDP numbers, everyone in China knows that they are just a broad average of the provinces and areas with an error of ~10%, so 7.5% can mean between 7% and 8%").
  • Secondly the market has completely overlooked / missed the fact that in order for China to achieve its 20 to 50 year growth targets it initially needs to develop access to the rest of the world through joint venture construction projects with all countries (ideally using Chinese materials and expertise). [for more detail see the Goode News column of the August 2013 issue of Paydirt]. China basically needs the rest of the world to be developed too.
  • 3. Or in other words, commodity prices should not be weak. So how to get them to weaken or appear to be weak, and pay less for the required underlying demand ?. Is it simply one of the 36 Chinese strategies of the "Art of War" - one recalls John Hewson's comment at the recent Symposium Broken Hill Conference in May 2013, Paul Keating phoned John afterwards and said "I didn't mean those things I said, you must understand that politics is a 'game' and I'll say or do anything I can to win it". So does China perceive commodity markets and prices as a 'game' to be won by any means possible ?
  • Written by: Keith Goode
  • Monday, 01 July 2013

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