China is a country that has exhibited an awesome rate of economic growth pattern for the past few decades. This makes China one of the fastest growing Asian economies and the second largest economy in the world. The Chinese economy has been regularly clocking 9% growth for the past two decades. This rapid growth has established China as a major consumer of commodities in the world economic ecosystem.

Today, the world watches anxiously for any changes in the economic indicators and events from this manufacturing behemoth of Asia. So, any major changes in the Chinese economic data will affect its consumption, which inevitably affects the prices of major commodities in the global market.

The recent economic reports coming out of China indicates that the country is going through an economic slowdown. It recorded the slowest economic growth in the past decade with a 7.4% GDP growth in the third quarter of 2012.  Furthermore, the growth for 2013 in first quarter declined to 7.7% from the previous year’s last quarter growth of 7.9%. This is a clear sign that this Asian economic powerhouse has entered into a sluggish growth phase from its rapid growth phase few years back. As if acknowledging this fact, the IMF and the OECD have slashed their 2013 economic forecast for China to around 7.8%.

Whereas, the other economic indicators show that China’s exports grew the lowest in the past year at 1% in May, 2013, with the imports, mainly commodities, falling by 0.3% against an expected rise of 6%.  The Chinese deceleration in growth made a profound impact on the global prices of major commodities like Crude and Copper. The WTI oil futures fell by 2.2% after the Chinese Manufacturing Index Data hit the markets. China’s Purchasing Managers Index (PMI) declined to 49.6 for May, 2013 against expectation of 50.4. While an index value above 50 indicates expansion, even a slight fall below 50 suggests a significant contraction in China’s industrial output.

China is considered as the swing consumer for crude like Saudi Arabia being regarded as the swing producer. This means any consumption changes will adversely affect the prices of crude. This was evident as the WTI oil July delivery fell by 1.6% per barrel whereas, Brent crude July settlement slumped to 1.3% per barrel in ICE Futures exchange in London.

On the other hand, in the base metals category, copper was significantly affected by the gloomy forecasts for the Chinese economic growth. China is estimated to consume a whopping 40% of the world copper production. So, the slowdown in Chinese manufacturing sector and industrial outputs severely affects global demand and prices for Copper. Reacting to the negative Chinese PMI data, the three month delivery rates for copper had considerably declined by 2.9% on May 23rd, 2013. Domestically, Copper Future Contracts slipped by 2.6% for the September delivery in the Shanghai Futures Exchange.

Experts also feel that the recent capital flow restrictions imposed by the Chinese government to end the interest rate arbitrage also played a significant role in reducing the price of Copper across the globe.

However, the recent Chinese PMI index for May shows promise, with the index edging above the critical mark of 50 to 50.8 entering the expansion zone. This has led some analysts to hope for a better performance from this Asian powerhouse and better economic growth around 7.8% for this year. This provides some hope in the coming months for copper and crude prices to regain from their fall due to negative Chinese economic data.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.