Clyde Russell is a Reuters market analyst. The views expressed are his own.
HONG KONG, June 27 (Reuters) – It was hard to find anybody who didn’t profess to be bullish about the outlook for China’s commodity demand at LME Week Asia, but what is changing is exactly what market insiders mean when they express optimism.
The first major shift in thinking among participants at the metal industry’s gathering this week in Hong Kong is that it appears that they are bullish about volumes, but not necessarily about prices.
The boom in China’s commodity imports in the past decade was accompanied by a surge in prices, but it appears the market is finally coming to terms with the fact that this nexus has broken down.
Take iron ore and steel for instance. It’s not an unreasonable forecast to believe that China’s demand for iron ore imports will rise from 745 million tonnes in 2012 to a figure closer to 1 billion tonnes over the next 10 years.
Demand for the steel-making ingredient will be driven by China’s ongoing urbanisation and the infrastructure building associated with this process.
Jun Ma, Deutsche Bank’s chief economist for greater China, told the conference that he expected China’s rail network to expand by 60 percent in the next eight years, while the subway system needs to expand fourfold over the same time period.
On the surface this type of forecast is bullish for iron ore and steel demand, and Ma’s overall optimism appears to be shared by many industry insiders.
But ask about the outlook for iron ore prices and a different story emerges.
Just as finding somebody bullish on demand was easy, finding somebody equally bullish on prices at the LME Week Asia conference was a far harder ask.
Over the short term the expectation was for commodity prices to struggle until there is evidence that China’s economy is starting to regain the momentum it seems to have lost in the second quarter of this year.
Over the medium to long term, the pricing outlook remains just as uncertain, with few industry participants willing to say iron ore will rise much from the current Asian spot price of $113.80 in real terms.
In fact, it was much easier to find forecasts for prices to fall to around the $90 a tonne mark over the longer term.
So, unlike the first part of the Chinese-led commodity boom, it’s possible to be simultaneously bullish on demand and bearish on prices.
For the rest of this article, click here: http://www.reuters.com/article/2013/06/27/column-russell-china-commodities-idUSL3N0F30R020130627