China Begins Taking Action Against Rising Commodities
The decision of China’s state planners to wage a war against soaring commodity prices has directly affected iron ore futures that fell sharply on Monday. China has threatened top metal firms with severe punishment for price manipulation, excessive speculation, and spreading fake news, according to Bloomberg. There’s a “zero tolerance” for monopoly behavior and hoarding, the National Development and Reform Commission (NDRC) told top executives of top metals producers on Sunday.
According to Bloomberg data, Chinese steel output in April increased to 97.8 tons last week, hitting monthly and daily run-rate records. And compared to the last year, the surge in production has increased year-to-date production to 375 million tons, which is 16% higher.
Chinese Data Weakens
In addition to that, this Monday we saw the latest of China’s economic data for April, which disappointed and included a large retail sales miss with a print of +17.7% YoY (vs. +25% YoY expected). There were also misses for industrial output (at +9.8% YoY vs. +10% YoY expected) and YTD fixed investment (+19.9% YoY vs. +20% YoY expected).
However, the weakness in iron ore didn’t affect other commodities as oil flew 4% higher toward the current cycle highs near 66 USD, while precious metals were also trading higher. At the same time copper is dropping down 8% from its cycle highs reached earlier in the month.
Lumber is Volatile
As to the lumber, it has experienced a 30% correction in May but has managed to erase more than 50% of it, and therefore the long-term trend is high and as stable as it can be. Lumber is up more than 500% since its March 2020 lows. Since lumber is one of the key industrial commodities it can be targeted by central planners.
It looks like the ultra-lose monetary policies, never-ending money printing, and fiscal stimulus across the globe have pushed hard assets, such as commodities, sharply higher. Furthermore, the upcoming boom from reopening economies also helped in pushing prices higher.
It’s hard to say if a deflationary crash ahead of us, but as long as central banks continue pumping money, commodities should outperform other assets.