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Quarter-End Insights

Basic Materials: China Will Keep a Lid on Most Commodities

Looser credit conditions or fiscal stimulus may temporarily boost China's demand for coal, copper, and iron ore, but the bounce would be fleeting.

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  • Mined commodity prices are unlikely to recover from recent lows, as China's structural economic transition diminishes the main source of global demand growth.
  • Falling input costs and global overcapacity have reshaped the global steel industry: Prices will be lower for longer.  
  • Weak crop prices and low farmer incomes are a significant headwind for fertilizer and seed companies, but we don't expect the breeze will be too strong.

Prices for most industrial commodities (for example, coal, copper, and iron ore) fell considerably last year and have largely continued their descent in 2015. Slowing Chinese demand has been the common denominator, reflecting a deceleration in construction and industrial production. We view this as a structural slowdown catalyzed by overinvestment and rising debt. Although looser credit conditions or fiscal stimulus may succeed in boosting construction and industrial activity, this would likely provide only a temporary respite. 

Daniel Rohr does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.