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China to flood the commodities market, mining companies plumb the depths


18 June 2021

The Chinese government is at it again, manipulating the markets under a thinly veiled propaganda-infused ruse that measures needed to be taken to protect consumers from high prices. In straight-forward terms, that means that an attempt to crash the share prices of large publicly listed mining companies in the free-market world has been successful, with the Chinese Communist Party saying that it is all for everyone's own good.

The price of raw materials, and of precious metals, had been rising globally, a trend reflected in the last few weeks' data from major commodities exchanges across Europe, North America, Australia and Hong Kong, four major regions in which commodities markets are key components of the financial markets structure.

China, a country whose government's ideology, and system does not align with nor approve of the diversified market economies of the non-communist world, has a unique method of controlling markets in a way that its own industry sectors, most of which are owned by the state, can benefit. Quite simply - crash the commodities market to stop the boom, then buy the raw materials for cheap, hence reducing construction and infrastructure development costs and outstrip all nations in industrial and commercial output. Easy? Very

As easy as reporting via the state news agency, via which China's government put out a report that it would release some of its stockpiles of copper, aluminium, and zinc, with the official line being that this move is necessary in order to stabilise the surging market in raw materials and prevent higher prices being passed onto customers. How thoughtful...

Oversupply, or at least the potential thought that there could be oversupply, is often a driver of downward markets and this is no exception. Mining companies which are listed on public exchanges in Western nations are now heading down. Anglo American stock has fallen by 1.2% which equates to 35.3p, and now languishes at 2963.5p, Glencore has dropped by by 1.2%, and Chilean copper group Antofagasta by 1% to 1454p.

These are all operating in areas in which China has an infrastructure development interest, hence reducing the cost of materials and lowering the competition's advantage and giving China's government a significant advantage in obtaining what it needs for its large-scale projects. At the same time copper floundered, falling to the lowest level in around two months, trading 4% lower at $9,569.50 a ton. Unsurprisingly, this weighed on the FTSE 100 mining firms, the prices of zinc, tin and aluminium have now all dropped.

Once again, the possibility of influencing massive and well-developed markets can be done via the media, however this time it is not the Reddit disruptors, it is the most industrially advanced and powerful government in the world.

Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.5% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.
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