Commodities Surge As China’s Great Reopening Gathers Momentum – What’s Next?

Phil Carr
Updated: Mar 6, 2023, 15:34 GMT+00:00

March is certainly shaping up to be an incredibly profitable month with China’s Come Back and Re-Accelerating Inflation now emerging as the two biggest macroeconomic themes driving the Commodity markets.

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The Comeback of China’s Economy and 1.4 Billion Chinese Consumers Is a Massive Game Changer

You certainly cannot talk about Commodities without mentioning China – And that’s because “China’s Great Reopening” is one of the hottest and most pivotal macro trading events of this year, if not this decade.

The most eagerly anticipated data release of the month – revealed China’s manufacturing activity expanded at the fastest pace in more than a decade in February. China’s manufacturing PMI smashed records – surging to 52.6 from 50.1 in January – the highest reading since April 2012.

Meanwhile, the official National Bureau of Statistics Non-Manufacturing PMI – a measure of economic activity in the service sector – soared to 56.3 in February from 54.4 a month earlier. That’s the second consecutive monthly increase, since China reopened its economy and the highest reading in two years.

And the data doesn’t stop there. A very similar bullish trend is also being reported in Chinese consumer spending activity.

China a country of 1.4 billion people, who stashed away over $2.6 trillion during three years of lockdown – appear to be enjoying their newfound freedoms again by embarking on massive “revenge spending” sprees.

According to the latest figures, Chinese household consumption surged in January and February – with consumers splashing out on travel, hotels, dining, entertainment, as well as retail spending on luxury goods, cars and electronics.

This is a trend we have seen before when the rest of the world come out of lockdown – and we know what impact that had on inflation, commodity prices and supply chains in the months that followed.

The data immediately sent a long-list of Commodities from Aluminium, Copper, Palladium, Platinum, Gold, Silver, Zinc, Crude Oil to Natural Gas prices skyrocketing to multi-month highs – with many notching up spectacular double digit gains.

And then there is China’s $1 Trillion Infrastructure Investment Plan, which it will begin rolling out this year. The Infrastructure Investment Plan involves pumping hundreds of billions of dollars into the construction of new roads, bridges, canals, reservoirs, high-speed railways, renewable energy and power networks as well the development of new greener megacities and urban areas.

Interestingly, we’ve seen this exact infrastructure spending spree before with President Biden’s ambitious ‘Build Back Better Plan”, almost two years ago – which played a monumental role in kick-starting the current Commodities Supercycle.

Ultimately, China’s mega Infrastructure and Green Energy push means one thing. China is going to need more Commodities and lots of them.

The comeback of China’s economy and 1.4 billion Chinese consumers is a massive game changer – as rapidly rising Commodity demand from the world’s second largest economy could inevitably send the global economy into another supply-side shock and undermine the efforts of the world’s central banks to rein in inflation.

It is often said that history doesn’t repeat itself, but it rhymes.

Commodity Price Forecast for the Week

Since the beginning of this year, a list of the world’s most powerful Wall Street banks from Goldman Sachs, JPMorgan to Bank of America have continued to signal that the macroeconomic backdrop for Commodities is looking more bullish than ever before – predicting huge gains for the entire sector amid a Supercycle that has the potential to last for a decade!

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

About the Author

Phil Carrcontributor

Phil Carr is co-founder and the Head of Trading at The Gold & Silver Club, an international Commodities Trading, Research and Data-Intelligence firm.

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