CHINA AND COMMODITIES

CHINA’S ECONOMIC GROWTH STOKES COMMODITY BULLS AS RISKS GROW

Clyde Russell

Gulf Times, July 18, 2011

China’s stellar second-quarter economic growth should come with a health warning similar to investment products: past performance isn’t an indicator of future returns.

The commodity bulls will have been stoked by the 9.5% growth in gross domestic product in the three months to June.

Not only did it beat expectations of 9.4%, the details were positive, showing a 15.1% rise in factory output and record steel production.

Certainly, the case for a soft landing for the world’s fastest-growing major economy is still very much in place.

In such a scenario, demand for key commodities, such as crude oil, copper, iron ore and coal should remain robust, supporting higher prices in the second half of the year.

Investors responded to the China data by boosting the prices of metals, shares and the Australian dollar, a key risk-barometer currency.

But – and this is a fairly big but – the happy story presented by China may be adversely affected by developments half way across the world.

The debt crisis in Europe just seems to get worse and it now appears likely there will be a default of some sort on Greek debt, with heightened risks of something similar in Ireland, Italy and Spain.

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