Prices of commodities in China continued their steep descent as the evidence continued to accumulate that the Chinese economy is simply not keeping up with the vigorous pace that it once held. Concerns that the future supply of basics like soybeans, oil, and copper will outweigh the demand for these products have begun to furrow the brows of many leading Chinese economists.
China, once a major consumer of iron ore has begun to curb its purchases of the metal. Iron ore is used in the making of steel and is essential for the construction of many of the cornerstones of modern infrastructure such as airports, roads, houses, and factories. As China began to grow almost exponentially at the turn of the century, the country’s demand for iron ore began to skyrocket. Between the year 2000 and now, China’s rate of import for iron ore grew to well over five times its original size.
Unfortunately for the iron ore market, 2011 saw China’s rapid growth explosion dampen somewhat due to a government-mandated toss of cold water on the fiery Chinese economy. In order to keep the Chinese economy from burning itself out too fast, the Chinese government put some simple stifling measures into place which choked its economic growth down to about nine percent in 2011’s last quarter compared with nearly twice that amount in the same time period during previous years. The almost shocking growth target set by the government for 2012 is down to a tiny, shrunken seven and a half percent.
All of this bodes shamefully bad tidings for the iron ore market as well as the truck driving jobs and trucking companies that are needed to transport the ore. International mining mogul BHP Billiton Ltd. recently announced that it does not expect the Chinese consumption of iron ore in 2020 to be that much higher than the current consumption in 2012. This would represent a sharp decline in the growth rate of the demand for iron ore and may seriously affect both the iron ore market and the international trucking market, curbing truck driving jobs and possibly even putting many trucking companies out of business.
In February of this year, the real estate market fell sharply in nearly 50 cities across China. This was due in part to stringent measures put in place by the Chinese government designed to ease real estate speculation. Further measures by the Chinese government also marked the price of gasoline up to a new high, which may decrease the demand for automobiles and deal a further blow to the trucking market.
In the commodities markets, these measures and their consequences have been seen by investors not as indicators that they should panic but instead as opportunities to buy commodities at lower prices. The price of copper, for instance, dropped nearly two percent and was kept low by a mixed real estate report. This report stated that fewer houses were constructed in February across China but that far more permits than usual were handed out to contractors planning to build homes later in 2012.
According to some sources, the reason the Chinese economy is slowing is a combination of flawed indicators, the confusion of total growth with specific growth rates, and the tendency to assume that larger means more powerful.
Other sources state that an impending split in Chinese political parties is what is causing these government-mandated growth-reduction measures as well as the slowing of the Chinese economy in general.
On the US side, the economy has bee showing both signs of growth and stagnation lately. One indicator, truck driving jobs and transportation, have had a few strong months to start 2012.
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