An unusual decoupling
Although it’s less the case nowadays, China remains the factory of the world. As such, it needs to consume (import) raw materials to export finished goods. It is also a superpower with a big (internal) appetite. It is therefore not surprising to see China’s trading activity and commodity prices move in tandem.
Yet, over the last few weeks an unusual decoupling has emerged. While Chinese imports grounded to a halt, likely reflecting the lockdown-driven drop in economic activity, commodity prices surged. This clearly illustrates that commodities aren’t becoming more expensive because of booming demand, but rather due to constrained supply. This divergence will likely reverse in coming months. The question is: will it be driven by an acceleration in China or a decline in commodity prices? In our view, it will be a bit of both.