Title: The Impact of China's Economic Slowdown on Commodities Markets
Headings: The Impact of China’s Economic Slowdown on Commodities Markets
The Impact of China’s Economic Slowdown on Commodities Markets
The Recent Performance of Commodities
Agriculture
Metals
Energy
Recent Surging Chinese Imports
The Outlook for 2015
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Content: S&P GSCI)
From 2012 onwards, the prices of many commodities started to decline, before the majority of commodities plunged dramatically during 2014. Many economists recognise that China’s economy is still growing and that commodity prices are still considerably above historical levels. However, the combination of a global surplus of output in many commodity markets and expectations of a further slowdown in demand from China continues to underpin current market weakness and drive prices down. Agriculture
The cotton market has been among the most significantly affected. Following a spike in the cotton price in 2011, the Chinese government initiated a policy of buying much of its domestic cotton output to put into reserve at a higher price than the prevailing world price, in order to support its farmers. As a result, China’s reserves have increased six times since 2010, and it now holds 60 percent of the world’s cotton reserves. Between 2011 and 2013, the world market outside of China saw a year-on-year excess of cotton supply over demand. During this time, China imported cotton in an amount roughly equivalent to this excess, which had the effect of supporting world prices. However, as domestic demand slowed down, the government was faced with an excess amount of unwanted stockpiles. It, therefore, ended its reserve-building policy in time for the 2014 crop and instead focused on subsidising local farmers.