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Home»ADOPTION NEWS»Raw material prices fall due to Chinese economic headwinds
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Raw material prices fall due to Chinese economic headwinds

By Crypto FlexsFebruary 21, 20243 Mins Read
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Raw material prices fall due to Chinese economic headwinds
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Commodity prices fell 9% as China’s economic crisis, including COVID-19 and problems in the real estate sector, affected demand. Crude oil prices have fallen significantly. Despite the positive long-term outlook, short-term risks remain.

Commodity prices have fallen sharply in recent weeks due to concerns about slowing economic growth in China, according to CME Group. The Bloomberg Commodity Spot Index, which tracks the prices of 23 commodities, has fallen more than 9% since mid-April.

China Impact

Much of the decline was driven by concerns about weakening demand from China, the world’s largest importer of raw materials. Demand for raw materials such as copper, iron ore, and crude oil is expected to slow due to the Chinese economic slowdown and real estate market recession caused by the COVID-19 incident. This is putting significant downward pressure on global commodity prices.

“China accounts for more than 50% of global demand for key raw materials such as copper, steel and coal,” said Michael Smith, commodity strategist at ABC Bank. “If there is any problem with the Chinese economy, it will have a huge impact on the raw materials market.”

China’s manufacturing PMI fell to 47.4 in April, indicating a contraction in factory activity due to strict lockdowns. This has raised concerns about demand for industrial raw materials in the near term. Shanghai, China’s main commercial hub, has been under strict COVID-19 lockdown measures since late March.

Alleviating supply concerns

On the other hand, concerns about supply shortages have recently eased. Concerns that there would be a major disruption in Russia’s raw material exports have subsided somewhat. Russia is a major supplier of oil, gas, metals and grains, but has so far avoided sanctions targeting these flows directly.

“Commodity markets were initially spooked by the possibility of a Russian supply shortage, but this worst-case scenario has not materialized so far,” said Jane Wells, commodity analyst at XYZ Capital.

As supply constraints ease, demand-side risks come back into focus. As the Chinese economy loses momentum, the risk balance for commodities has become more bearish.

oil hit

Crude oil was one of the hardest-hit commodities, with the price of Brent crude oil falling more than 15% from its March peak to around $100 per barrel. Demand headwinds from China and the prospect of increased supply from Iran are weighing on prices.

“Oil markets face dual headwinds: weakness in China and a potential Iran nuclear deal,” Wells said. “Without Ukraine’s geopolitical risk premium, oil appears overvalued at $100 and has room to fall further.”

Agricultural products such as wheat and corn also showed a decline due to improved supply prospects. Additionally, the strength of the U.S. dollar has made goods less affordable for buyers using other currencies.

The recent decline does not change the long-term bullish picture for commodities amid still tight supply and resilient demand. However, China’s unstable economy poses near-term risks that could lead to further volatility and lower prices.

Image source: Shutterstock

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