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China’s Market Woes and the Effect on Global Markets and Commodities

UK gas and power contracts for winter delivery (commencing 1st October 2015 and ending 31st March 2016) are now trading at five-year lows, creating a fantastic opportunity for buyers to secure their energy at record lows.

These record lows are a consequence of a number of factors that have created a perfect storm for the bear market we are currently experiencing. The Chinese stock market crash, which has suffered a 30% fall over the past five weeks, and the subsequent demand worries are weighing heavily on investor sentiment in equity and commodity markets. The uncertainties around prospective interest rate hikes in the US and the UK are also having a bearing as FX and bonds will be affected by the timing of these hikes. This has fed into the commodities market, which is not a surprise when you consider China is the largest importer of raw materials in the world. For instance, in 2012 China consumed half of all the metal produced globally (91 million tonnes), and there are similar stories regarding coal, copper, oil, soya bean, cotton, and rice. Chinese demand destruction is feeding into other economies who have come to rely on China’s insatiable appetite for commodities. An example of this is Peru, which supplies China with copper. In 2012-14 Peruvian GDP was around 7%. This has now fallen to 1% because of China’s reduction in imports and subsequent collapse in the price.

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