Commodity prices have tumbled as worries over China’s slowing economy heightened following the release of the country’s latest trade figures over the weekend. Exports fell 18.1 percent in February, official data showed, compared with a market estimate of a 7.5 percent gain. Imports of crude, copper and iron ore also registered sharp declines for the month.
Copper futures started to tumble on Friday, dragging the prices of other commodities, including iron ore, screw-thread steel, processed coal and coking coal.
By Monday, their prices have dropped by their daily limits. Meanwhile, rubber, glass and silver fell more than 3 percent, while nonferrous metals such as aluminum, zinc and lead also retreated.
The recent turbulence in the commodities and financial markets are the result of various factors, and poor trade data is just one of them. Some analysts put the blame on the weakening of the Chinese currency and Chaori Solar’s landmark default on bond interest payments. The government’s renewed pledge to squeeze out excess capacity in the steel sector is also seen as contributing to the sell-offs.
The benchmark iron ore price at Tianjin Port declined 8.3 percent to US$104.7 per metric ton on Monday, its lowest level since October 2012. It was the second-largest fall on record. It has dropped 25 percent so far this year.
Reports that a steel company in northern China’s Shanxi province has decided to close down five of its six plants further depressed market sentiment.
Meanwhile, Bank of China Ltd. (03988.HK) is said to be considering withdrawing 20 percent of its loans to private iron and steel companies. Other banks are also tightening lending for the steel sector.
The government’s pledge to step up the fight against pollution and industrial overcapacity will add pressure to the sector, and a wave of closures affecting highly polluting steel mills is likely to come in the following months, according to some analysts.
The average price of iron ore has been standing at US$126 per metric ton over the past year. But it is likely to trend down given that a number of new mines in Australia will soon commence operation.
Analysts at Goldman Sachs forecast supply by sea will surpass demand in the second quarter, possibly sending iron ore price to US$108 per metric ton for this year and US$80 in 2015.
This could mean a prolonged lean period for dry bulk companies such as China Shipping Development Co. Ltd. (01138.HK) and Sinotrans Shipping Ltd. (00368.HK). Mainland lenders may also be affected by the worsening credit quality of borrowers from the steel industry.
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