Clyde Russell is a Reuters market analyst. The views expressed are his own
LAUNCESTON, Australia, Aug 6 (Reuters) – It’s not hard to find bearish commentary on the outlook for China’s commodity demand, but every so often a little bit of information contrarian to the prevailing market views comes along.
Such a snippet is the latest China Commodity Index compiled by ANZ Banking Group, which shows the weighted average price for a basket of commodities imported by China rose to a three-month high last week.
The index gained 0.6 percent in the week ended Aug. 2, with only industrial metals detracting from the increase. It’s 0.4 percent higher than three months ago, but 2.7 percent below the level a year earlier.
Although it doesn’t have a long history, the ANZ index is useful as it tracks 22 major commodities and is weighted to reflect China’s consumption. The idea that prices of commodities most commonly used in the world’s largest consumer are at a three-month high appears at odds with other recent evidence that economic growth is stalling.
The rise in the official Purchasing Managers’ Index to 50.3 in July from 50.1 in June has been about the only significant recent Chinese economic data that has surprised on the upside.
It was also in contrast to the HSBC manufacturing PMI, which fell to an 11-month low of 47.7 in July, well below the 50-level that separates expansion from contraction on a monthly basis.
The concern over weakness in manufacturing and the impact of the authorities’ efforts to restructure the economy has led to questions as to whether China will achieve its 2013 target for 7.5 percent growth in gross domestic product.
Worries over China have permeated to commodity-producing countries like Australia, with fears rising that the boom in natural resources is over and the country is now left with the hangover of over-investment in mines.
But as the ANZ index reminds us, sometimes the actual data doesn’t quite tally with the prevailing sentiment.
However, it’s worth looking at the index in detail, as the softness in China’s economic growth has sharpened differences between the performance of different types of commodities.
Since the index is at a three-month high, a good place to start is to look at the sector which has been the best performer and that is agricultural commodities by some margin.
For the rest of this column, click here: http://in.reuters.com/article/2013/08/06/column-russell-china-commodities-idINL4N0G70DD20130806