Slower China: end of the super-cycle?

Few issues exercise the minds of commodities analysts like China. The world’s biggest consumer of copper, iron ore, coal and other raw materials, China is the single biggest driver for commodities markets – and for the profits of global miners like BHP Billiton, Rio Tinto, Vale and Xstrata.

But as China’s economy slows and shifts toward “greener” growth, analysts are divided over the outlook for commodities. So divided in fact that Credit Suisse has released which, instead of hewing to a single conclusion, just lays out the conflicting views of its research teams.

In “China: Is the Commodity Super-Cycle Over?” the answers to that questions are myriad. The most bearish predictions come from analysts on the basic materials team, who predict a cyclical downturn in 2012. China “made the commodity cycle a lot more powerful on the way up and now can work the other way,” they write.

And there’s more:

“We believe that a stagnant outlook for China’s infrastructure and property sectors, combined with construction-biased Chinese commodity demand, will lead to disappointment in growth expectations for Chinese demand… In the near term, cyclical factors – such as “normalization” of the high basis demand from the 2009-2010 stimulus period, correction of over-production, over-construction, and the rippling effect on related sectors from the property slowdown – will make 2012 a difficult year for Chinese commodity demand. We believe that China will manage to soft land and that commodity demand will feel most of the “pain.”

CS’s commodities team is more optimistic. The slowdowns in housing and construction don’t look so bad if viewed in seasonally adjusted, month on month or quarter on quarter terms:

Source: Credit Suisse

The team expects Chinese demand for steel to grow by 7 per cent this year – down from 9 per cent last year but faster than the 4 per cent growth forecast by the China Iron and Steel Association. Today’s housing market is not suffering nearly as much as in previous downturns in 2006 and 2008, according to the team:

Source: Credit Suisse

Only time will tell which analysis is more accurate. But the ferocity of the debate underscores how China is entering uncharted territory as the world’s second largest economy tries to slow down and move away from the resource-intensive growth model that has fueled its development to date.

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