Straight from the Specialists
(The views expressed in this column are the author’s own and do not represent those of Reuters)
It is the season to be jolly and it is also the season for ‘outlook’ views on what the New Year will bring, and that is unlikely to make anyone jolly. There are many possible binary outcomes in 2012 that could move markets and commodities erratically, so the only certainty appears to be ongoing volatile price swings.
Continuing European angst and the reality of hardship and deleveraging are the most likely outcomes in 2012. A slowing China will also likely push commodity prices lower in the first half of the year. Global demand conditions are likely to get worse before they get better — and ‘the getting better’ is still dependent on government policy responses. The markets hoped for policy support sooner but this time the quick stimulus fixes of 2008-09 are not an option in 2012.
China’s outlook in 2012 will be dominated by its two engines of growth — property and exports. On both accounts we see tougher times. With Europe taking 17 pct of China’s exports and expected to see its GDP contract 0.7 pct in 2012, China’s export growth at best will be flat. In property, the key private commodity housing market is likely to see starts fall more than 10 pct, as property prices fall and credit on small developers remains tight. Both events will dampen demand throughout China and into the global commodity system. For instance, we estimate that the Chinese private commodity housing market consumed around 29 pct of all of China’s steel, nearly 15 pct of global steel and consequently a weakening commodity housing market in China is significant for global outcomes.