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Given the ongoing Russia-Ukraine and Middle Eastern conflicts as well as OPEC’s production cuts, one might imagine that commodity prices would be near record highs.

Yet, despite these disruptions, almost across the board, commodity prices are far lower today than they were at their peak levels from 2022. So, why have commodities generally been selling off?

Part of the explanation comes from strong harvests of corn and wheat in many critical growing regions. When it comes to oil, U.S. crude production surged to a record in mid-January, partially offsetting OPEC’s cuts. But the biggest reason why commodities haven’t rallied can be summed up in one word: China.

China is the world’s biggest consumer of raw materials, importing up to 40% of the world’s industrial metals, 10% of the world’s crude oil and around 10% of the food eaten in China. And China’s economy hasn’t been growing as strongly as many commodity producers had expected. Last year, China expanded at a 5.2% annual pace, which sounds good until one remembers that 5.2% growth was compared to 2022, when China spent much of the year in lockdowns.

China’s economy has been plagued by high levels of debt, collapsing real estate prices, slow growth in industrial production and consumer spending and sharply falling imports and exports. All of this has had consequences for commodity prices which tend to follow the pace of growth in China with a lag of roughly one year. Given the long lag times between the pace of Chinese growth and movements in commodity prices, even if China succeeds in boosting growth in 2024, which is far from a given, commodity prices might not sustain a rally unless global conflicts intensify supply disruptions.



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