Roubini warns on commodity prices and China
Posted on 04 August 2009 with no comments from readers
Professor Nouriel Roubini, who called the US housing crash, is warning that China has overstocked with commodities thanks to a surge in bank lending recently. He fears prices will slide as imports fall off in the second half of 2009, causing further turmoil in financial markets.
‘My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of its economy,’ he told a conference in Australia, noting that the recession would ‘continue to the end of the year’.
Stockpiling commodities
China has built up huge stockpiles of industrial commodities, initially taking advantage of cheap prices, and low-cost bank finance.
The Daily Telegraph said the economic superpower imported 1.8 million tonnes of refined copper in the first half – up 160 per cent on the same period a year earlier, and forcing copper prices up by 80 per cent – while primary aluminium imports increased 16-fold.
Normally in a recession the copper price would fall. Dr Copper is seen as a lead indicator, and if buying now slows from China then prices could fall back sharply.
Chinese exports have crashed by around a quarter this year, and only easy-lending policies by state-controlled banks have kept domestic demand up to compensate. More than a $1 trillion was loaned in the first half, twice the same period of last year and equivalent to more than 50 per cent of GDP.
Inflation
No country can sustain this level of profligacy in lending for long, if only because it is impossible to spend so much without causing massive inflation. Indeed, this inflation is already evident in commodity price levels.
Professor Roubini has been right before with astute comments that everybody only agrees with rather later when they are proven right. Perhaps it is no different this time and his warnings of a double-dip recession should be treated with more respect.
In such a double-dip the fall off in demand for commodities from China would cause a sharp fall in commodity prices and a downturn in global financial markets. The good news of course would be that lower commodity prices would eventually set up a more solid recovery from the recession.
no Comments posted by readers:
That’s really odd peter, you are manipulating what roubini said to try to influence readers with Pessimism. For gods sake even roubini started seeing a bit of hope that the economy might see growth sometime next year, why do you only want to see the glass half empty.
Double-dip or W-shaped recovery is becoming very difficult everyday. Why are you so desperate to see it happen that much. We will see a pull back soon as the market is currently overbought, but testing March lows is only in your dreams or perhaps nightmares!!
Did ya read gulf news today, business supplement, last page. Roubini’s pic smiling (a very rare incidence) and saying that “commoditiy prices will rise in 2010 as the global recsseion abates” this was taken from his conference speech in Australia….A bit contradicting with what you are saying
Below is what roubini said…He mentioned the possibility of increase in commodity prices and warned of a possible risk…but the guy was not as pessimistic as you are saying, he is still talking about potenial growth…you have beaten roubini, congrats peter!!
Ed Note: you have clearly missed the point: the media is currently manipulating all the still very bad news to the positive – I am merely trying to correct to a true position. My words have little influence of course but we will see who is right!
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China may have overstocked on commodities, risking a slowdown in buying and a correction in prices in the second half of this year, top economist Nouriel Roubini said on Monday, also reiterating that the global recession would continue until year-end.
Roubini, a New York University professor and one of the few economists who predicted the magnitude of the financial crisis, said he expected most commodity prices to continue a gradual recovery in step with rising general economic growth.
“The recession will continue to the end of the year,” Roubini said at the Diggers and Dealers mining conference in Western Australia. But he added: “As the global economy moves towards growth as opposed to a recession, you are going to see further increases in commodity prices, especially next year.”
“The risk in the second half of this year is that the rate of accumulation in China must slow down — one of the factors that a downside correction in commodity prices, however modest, may occur,” Roubini said.