KUALA LUMPUR (Feb 26): A downturn in China’s investment cycle could push down global prices for some commodities, such as iron ore, by up to 12%, according to new study by Standard & Poor's Ratings Services (S&P).
In a study entitled “The Investment Overhang: If China's Investments Dip, Commodity Prices May Slip” released on Feb 25, S&P found a strong correlation between movements in China’s investment-to-GDP ratio and prices for commodities such as iron ore and coal.
“Under our downside scenario for China, prices for a range of commodities could decline by between 5% and 12%, averaging a fall of 9%,” it said.
S&P credit analyst Terry Chan said China has an outsized impact on commodity prices
“We’ve observed that trends in China's investment-to-GDP ratio and commodity price indices for the period spanning 1998-2012 have moved similarly.
“The strong correlation suggests that future movements in commodity prices could, over the near term, track the trend in China's investment share of GDP,” said Chan.