Lower-than-expected economic growth and a downward drift in
commodity prices will become more evident this year as
Chinas new leadership begins a rebalancing and remodeling
of the economy.
The 7.7-percent gross domestic
product (GDP) growth rate in the first quarter, slightly below
anticipated levels, was partly to blame for a recent fall in
copper prices and another round of reductions in analysts
But this is seen as just the
beginning of a slowdown under which Chinas government
will be reluctant to intervene to prop up the economy unless
absolutely necessary for social or political stability.
"Were definitely seeing
the end of the supercycle and were moving to a less
investment- and production-intensive path," Ian Roper,
commodities strategist at brokerage and investment group CLSA
Asia-Pacific Markets, said. "Yes, China is still urbanizing and
developing in the west, but the pace is slowing down."
The incoming leadership faces
multiple challenges, including environmental problems, rising
inequality, corruption, the constant threat of a housing bubble
and the sniff of a financial crisis in local governments.
Chinas top leaders
released a statement April 17 affirming their commitment to
"focus on the quality and profitability of growth," indicating
that the senior leadership has reached a consensus to tolerate
And Chinas central bank
governor said April 20 that lower growth would be the new
normal, because the government had to sacrifice some GDP to
ensure the economy did not become too unbalanced again.
The current macro context has
combined with fairly weak seasonal demand for copper to
generate a significantly more bearish mood on prices.
"I believe a different dynamic
has emerged in China in recent weeks," John Browning, head of
metals and listed products at Jefferies Bank, said.
One Singapore-based analyst said
that a recent tour of copper fabricators in eastern China
offered a fairly downbeat impression of their prospects for
this year. "The demand side is looking pretty ordinary.
Its not astonishingly gloomy, but there is no real
optimism," he said.
"It now seems clear that growth in China has moved to a
structurally weaker pace," Credit Suisse Group analysts said in
a research note. "We feel that this recognition, coupled with
the likelihood that the European road to recovery will be long
and bumpy, is likely to see many industrial commodity prices
move to a new, lower equilibrium."
A version of this article was first published by AMM sister
publication Metal Bulletin.