Does China Hold the Key to Future Commodity Pricing?

Last week we touched on some of the challenges that the free-fall decline of copper can have on distributors. And the issue can be just as challenging for wire manufacturers, especially since they probably had to lock in raw material costs months ago (which may infer that some deals are to be had as they need to push overpriced inventory, or hold it until the price rises.)

An article in today’s Wall Street Journal touched on the role that China has, and will, play in the metals market. Some interesting observations:

• “China’s been the great hope of the metals industry, and in the short term, it’s not looking as though it will show any significant growth in demand,” said Macquarie Research analyst Adam Rowley in London. “
• In the past seven years China has accounted for 99% of the growth in world demand, 87% in zinc, 79% in nickel, 60% in aluminum and 59% in steel.
• The real-estate market slowdown comes in tandem with a slump in China’s export industries, which are themselves significant consumers of copper, zinc and aluminum.

The article’s conclusion:

Demand growth isn’t expected to recover until mid- to late 2009 at the earliest and possibly will recover only once there is a global economic recovery, even if China introduces a fiscal-stimulus package as many expect.

What does this mean for distributors? Manage your wire and steel inventories very very wisely. Don’t expect a signficant commodity rebound in the near future.

What does it mean for manufacturers? The days of justifying a price increase based upon raw materials can be forgotten for a while. And if price increases were the justification in the spring, does that mean that there will be price decreases? Will distributors be able to negotiate pricing with their suppliers (possibly using historical information).