The “commodity super cycle” of the 2000s was driven largely by China’s voracious demand to build. From 2001-2008, the pace of commodity prices was positively correlated to China’s growth, possibly even the only reliable indicator for the country’s economic momentum. But now, China fears soaring commodity prices will feed through to higher consumer prices, acting as a drag on economic growth in an economy now dependent on consumer spending, (rather than government infrastructure investment).
Over the past month, China’s Premier Li Keqiang and other policymakers have focused their messages and actions on reining in the surge in commodity prices. Chinese authorities have raised trading limits, fees, and margins on commodity markets. Trading firms have been asked to cut their bullish best in efforts to keep speculation from driving up costs. Steelmakers have been banned from discussing price hikes, tax rules were changed to restrict exporting, import orders have been slashed to reduce stockpiles, and producers have been compelled to sell inventories.
It appears to be working, given markets from materials to agriculture have pulled back sharply from multi-year highs as China’s crackdown began.