China's Economic Slowdown Further Hurts Depressed Commodity Prices

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Turmoil in global stock markets have grabbed headlines, in large part due to China's shaky economy. For months, commodities worldwide have also been plunging, and much of that can be linked to China.

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Transcript

DAVID GREENE, HOST:

China is buying less from Brazil. That's a factor in Brazil's economic crisis.

STEVE INSKEEP, HOST:

And the bigger truth is that any country that prospered selling raw materials or commodities to China is facing trouble now. NPR's Jackie Northam reports.

JACKIE NORTHAM, BYLINE: For years, China has had an enormous appetite for commodities, everything from coal and iron ore to copper and nickel, to help construct its bridges and ports, feed its voracious steel mills to build plants and apartment buildings, even entire cities. China tapped into countries around the world to help feed that appetite. It became the largest consumer of raw materials, says Andrew Hecht, chief analyst with commodix.com, a commodity research website.

ANDREW HECHT: China built a lot of infrastructure over recent years, and China spent a lot of time stockpiling commodities. Now that they are slowing down a little bit, that is hampering demand on a global basis in a big way.

NORTHAM: Hecht says many commodities such as copper, lumber and oil are now at multiyear lows, affecting those countries producing them.

HECHT: In a place like South Africa, which, you know, has been the largest producer of gold, largest producer of platinum, many other minerals, Indonesia certainly lowered nickel prices. Because they're a very big producer of nickel, it's hurting their economy. The lower oil price for Russia is a nightmare, especially on top of sanctions.

NORTHAM: Countries whose budgets depend on exporting raw materials to China in particular are getting hit hard, says Edwin Truman, an economist with the Peterson Institute of International Economics.

EDWIN TRUMAN: You have a country, for example, like Australia, which has been producing a lot of coal and iron ore and shipping it to China, and its become very dependent on the Chinese market.

NORTHAM: Canada's economy, like Australia's, is suffering from the slowdown. Its dollar is at a decades low. Ian Nakamoto, the director of research at MacDougall, MacDougall, MacTier, a Montreal-based investment firm, says an overreliance on oil and gas and natural resources has stunted the economy.

IAN NAKAMOTO: For Canada, you know, I guess one of our competitive strengths has been, and will continue to be, is our ability to produce commodities. And we were doing fine until China started to slow down. And all of a sudden, we realize that we relied too much on that one growth engine, that growth engine being commodities. And it's come home to roost.

NORTHAM: Nakamoto says low interest rates helped fuel development of those industries.

NAKAMOTO: The commodity producers were building mines, building oil facilities. There's been an oversupply of commodities, and that was premised on the fact that China would continue to consume and grow something in the order of 9 percent GDP, and that obviously hasn't happened.

NORTHAM: Nakamoto says there are other factors at play, including a stronger U.S. dollar, which tends to push down the price of raw materials. Prices may have been pummeled this week, but commodities by nature are volatile and regularly go through boom and bust cycles. Hecht with commodix.com says there's actually been a slow downturn in commodities for a few years. And while China's economy may not be as robust as once thought, it's still pretty good.

HECHT: I wouldn't count China out. Quite frankly, they're still growing. It's just that that growth is slower.

NORTHAM: But that may be small comfort to workers at coal mines, on farms and oil rigs around the world who depend on selling their commodities. Jackie Northam, NPR News. Transcript provided by NPR, Copyright NPR.