For the better part of the last two decades, commodity markets have become accustomed to demand growth from China supporting prices. Whether it was iron ore from Australia or soybeans from the U.S., sales to China grew year-over-year. However, it’s becoming increasingly likely that those days are over.
Headlines over the last few week to show the Chinese economy is in some trouble, as the government halted trade on the Shanghai market twice in four days in an attempt to prevent a market meltdown, sending shockwaves through all of the world’s commodity markets.
China’s per-capita GDP is still projected to increase by around 6 percent in 2016, but it’s a far cry from annual income increases of 10 to 30 percent in the 2000s.
“Their growth, which has been a catalyst for the world economy for a lot of the prices we’ve seen in terms of minerals, raw products and food commodities, they’re not growing at 10 percent anymore,” explains Neil Townsend, G3 Canada’s director of market research in the interview below. “They’re growing at six percent, which still sounds great, but it’s a sharp decline from 10 percent.”
And that means commodity markets are left looking for new markets to drive demand growth.
“It’s hard to imagine any other country or countries doing what China did from 1995 to 2014 and just build millions of buildings, roads, airports on a consistent basis,” he says.
Neil Townsend discussed how the Chinese economic slowdown and changes in the country’s feedgrain policies will impact ag commodity markets at St. Jean Farm Days in St. Jean, MB last week: