Mon, July 22, 2024

Upcoming Policy Changes in China’s Commodity Market

Грядущие изменения политики на товарном рынке Китая

Quick Look:

  • China Addresses overcapacity and waning demand across key industries like solar power, proposing market unification and grid enhancements.
  • Solar power prices drop, copper is affected by economic uncertainties, steel exports surge, oil refining profits plunge, and grain prices hit lows.
  • Solar faces overcapacity; copper deals with weak demand; steel tied to real estate; oil refining shifts towards clean energy; grains struggle with rural reform and climate impacts.

China’s commodity market is bracing for significant developments, with a series of crucial events slated for the near future. Next week, Beijing will host a considerable policy meeting to tackle overcapacity and waning demand across various sectors. The forthcoming Third Plenum, a key forum for long-term political and economic reforms, is also on the horizon, although expectations are tempered, with significant initiatives unlikely. Nevertheless, subtle tweaks to the policy framework could have consequential impacts.

The Looming Policy Meeting in Beijing, China

Next week’s policy meeting in Beijing is set to address the pressing issue of overcapacity and faltering demand across China’s key industries. The agenda is expected to cover several critical sectors, each grappling with unique challenges.

Solar power, for instance, is suffering from excess capacity and fierce competition, leading to record-low prices. Grid limitations further strain the industry, which struggles to manage the electricity generated. Proposed solutions include unifying regional markets and nationwide trading based on market prices, alongside significant spending on grid connections to support economic growth.

Third Plenum: Expectations and Anticipations

The Third Plenum is anticipated as a forum for discussing long-term political and economic reforms. While significant initiatives are not expected, any policy tweaks could be impactful. Market watchers, like Paul Bloxham of HSBC Holdings Plc, are keenly observing potential announcements in the property, infrastructure, and manufacturing sectors. The Plenum could introduce measures to foster growth in emerging technologies, such as drones and flying cars, alongside more conventional initiatives like digital traffic management systems, bolstering demand for metals like copper and tin.

Price Fluctuations in Key Commodities in China

The Chinese commodity market is witnessing notable price fluctuations, reflecting the broader economic challenges. Solar power prices have plummeted due to overcapacity and intense competition. Copper, having retreated from a record high in May, is affected by high costs and economic uncertainties. Steel exports have surged to an eight-year high, a symptom of weak domestic demand. The oil refining sector is facing a downturn, with profits plunging amid overcapacity issues. Grain prices, mainly corn and wheat, have hit multi-year lows, impacting farm incomes significantly.

Sector-Specific Challenges and Potential Solutions

Each sector within the Chinese commodity market is navigating distinct challenges. Despite being a priority for Beijing, the solar industry needs more capacity and fierce competition. Proposed solutions include market unification and enhanced grid connectivity. The copper sector is battling weak demand, factory deflation, and a property crisis. Expectations center on increased investment in the grid and clean energy, along with support for the property market and tech-heavy industries.

The steel industry’s woes are tied to real estate troubles and reliance on new construction. Restructuring finances away from indebted local authorities towards central government debt could be a viable solution. Oil refining, facing a shift towards clean energy and overcapacity, may see fewer independent refiners and improved tax compliance due to potential tax reforms. The grains sector continues with rural reform and food security issues, exacerbated by insufficient farmland and climate change impacts. Solutions might include freeing up arable land and financial support for farmers to recover from extreme weather events.

Key Trends and Market Outlook

Recent trends highlight the challenges and shifts within China’s commodity market. Solar power usage has been declining, as noted by the National Energy Administration. According to the Shanghai Futures Exchange, copper inventories are swelling, reflecting weak demand. According to the General Administration of Customs, Chinese steel exports have reached an eight-year high, driven by domestic demand shortfalls. The independent refining sector has seen profits plunge, as reported by Mysteel OilChem, due to overcapacity. Grain prices continue to slump, with JCI noting significant impacts on farm incomes.

The Road Ahead

The Chinese commodities market faces a bearish outlook, underscored by significant policy meetings and sector-specific challenges. Next week’s policy meeting and the Third Plenum will address key issues like overcapacity, demand fluctuations, and economic recovery strategies. Policy adjustments, financial restructuring, and support for new technologies are more likely to be on the agenda. Market observers await signals on how the Chinese government will navigate these complex issues and steer the economy towards a more stable footing.

The unfolding developments in Beijing will undoubtedly set the tone for the future of China’s commodity market. As policymakers and industry leaders converge, the world watches closely, awaiting decisions that could reshape the landscape of global commodities and influence economic trajectories far beyond China’s borders.


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