Jake's View | Fed to blame for commodities rout, not China

Shanghai steel futures languished near a record low yesterday amid cooling Chinese demand, putting more pressure on raw material iron ore that is only a tad off a seven-year trough.

Reuters, SCMP, November 25

Blame China. A global glut of commodities has emerged because China suddenly decided it no longer wants mineral ores. Prices are now collapsing, which threatens the worldwide supply chain. It’s all China’s fault.

I have one problem with this story. Look at the first chart on the quantity of China’s iron ore imports and you see scant sign that iron ore is no longer in demand. That demand curve has flattened out but this is after a 16-fold growth over the past 15 years. A breather was due at some point.

And what you see in iron ore you can also see in other major minerals and in petroleum. In some cases there has been no slowdown at all. Imports of copper ore and concentrates, for instance, are still growing at double digit rates.

Nor do the figures show evidence of a pronounced slowdown in production of steel or a build-up of steel inventories within the Chinese economy. The statistics are admittedly, shall we say, fragile, but they are generally consistent over time and they show no collapse.

This, however, represents the data for the quantity of imports and production. Most people prefer to look at the value of these things. It’s much easier that way. There are no apples and oranges to compare, only US dollar figures.