http://www.miningweekly.com/page/americas-home
TORONTO (miningweekly.com) – Commodity prices will continue to face near-term challenges that are linked to the dip in Chinese growth. However, support is likely to come from the country’s new economic agenda, Scotiabank VP and commodity market specialist Patricia Mohr told attendees at the recent Global Chinese Financial Forum.
Gold will come under greater pressure as the US recovery gathers pace, while some opportunities are apparent in base metals, particularly with zinc. “In addition, because of the tremendous expansion in US and Canadian oil and gas production, there are some excellent prospects in the pipeline and railways sectors,” Mohr said.
NEW ORDER
China dominates the global base metals market, accounting for 46% of global demand. Given this, the country’s economic fortunes are closely monitored, with any dip in growth potentially representative of a reduced metals uptake. Chinese gross domestic product (GDP) growth for 2014 will be over 7%, which compares with 7.7% in 2013, Mohr said.
In the long term, support for commodities will come from China’s new economic agenda that was born out of a leadership change in 2013. One of the agenda’s central goals is to spur greater urbanisation to underpin growth and boost further infrastructure investment.
One of key platforms here is to speed up rural land reforms and allow families a better chance to obtain municipal citizenships in order to live in major Chinese cities, such as Shanghai. In addition, the inflow of people will require new and improved housing, both social and private, which will act as another lift for commodities.
The leadership is also keen to loosen some of the controls enjoyed by state-owned companies in several sectors, increasing the role of market forces in allocating resources. “For example, the government wants to decontrol energy prices,” Mohr said.
Among the agenda’s proposed fiscal reforms, the Communist Party wants to deleverage municipal finances and improve the alignment of municipal spending obligations with revenues. Some of these spending obligations will shift to the central government, while the municipalities will also be allowed to issue debt.
“This is an important issue for the financial markets in London and New York, where the high debt levels of municipalities in China has been a source of concern,” Mohr stressed. “Remember it was the municipalities that financed the huge infrastructure development [in China] coming out of the 2008 global recession.”
For the rest of this article, click here: http://www.miningweekly.com/print-version/commodities-under-pressure-as-china-continues-economic-realignment-2014-10-09