US currency weakness seen as biggest upside risk for commodities; optimism on growth environment at home.
Contrary to general belief that Chinese demand will drive global commodity prices, Chinese industry believes the US will continue to have stronger influence on these. The weak dollar is seen as a major upside risk for commodities, while premature withdrawal of the Fed’s stimulus is seen as a major downside risk.
According to a survey of Chinese industry and trade representatives by Barclays Capital, the participants were bullish on crude oil and gold, saw iron ore as the likely worst performer and sentiment towards base metals was relatively weak.
Despite a series of measures aimed at tightening of liquidity and soothing the over-heating economy by the Chinese central bank, industry there is not perturbed and remains relatively positive on China’s annual economic growth, which they put at above eight per cent. Some optimists see it crossing nine per cent. These views are reflected in a survey conducted by Barclays Capital Commodity Research in China, covering around 50 representatives from major producers, consumers and trading houses, primarily in the energy and metals sectors. The majority said the biggest upside risk for commodities this year was dollar weakness, followed by emerging market demand.
In a similar survey done in March by Barclays in London, the majority believed a Chinese hard landing was the biggest downside risk for commodities. Only a handful cited dollar weakness as the biggest upside risk; they said geopolitics was.
Yingxi Yu, an analyst with Barclays, said: “The key direction for the (Chinese) 12th five-year plan would be in urbanisation, rural electrification, a move from an investment-driven to a consumption-driven economy, greater income growth.”
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Commodity prices, in general, have rallied in the past two months, while the dollar has weakened. Compared to the situation two months earlier, more and more Chinese industry representatives believe emerging market demand could be another upside risk for commodity prices, after weakness in the dollar.
They do not, as noted before, see growth momentum as affected much due to tightening monetary conditions. And, believe the 12th five-year plan would help demand and energy and agriculture commodity prices to remain stronger.