China to continue to weigh on commodities: report

By a staff reporter

The slowing Chinese economy will continue to weigh on commodity markets as the Asian nation is forced to adjust to the next phase of the commodity price cycle along with other countries, a new report says.

The inaugural China Resources Quarterly, compiled by the Bureau of Resources and Energy Economics (BREE) and Westpac Institutional Bank (Westpac) covers the June quarter and shows the Chinese economy grew at a rate slightly below its potential in the first half of 2013.

Overall activity was supressed by external headwinds and a less accommodative policy, which saw data out of China generally seen as underwhelming, the report said.

"The slowing growth in China is starting to flow through to commodity markets, with the prices of most resource commodities falling," executive director of BREE Bruce Wilson said. 

"Consequently, many producers around the world are operating at a loss.

"Chinese producers have not been immune to these developments, and recent announcements of directed closures suggests government support for unprofitable producers may be waning."

The report noted there was mounting evidence that the current phase of the commodity price cycle is coming to an end.

"Global supplies have caught up with the rapid demand growth of the past decade," the report said.

"Most markets now face surplus supply.

"The resulting accumulation of stocks has depressed prices to the point where many producers around the world are operating at a loss.

"Metal producers in China have not been immune to these market conditions and recent announcements of directed capacity closures suggests Government support for loss-making producers may be waning."

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