The New York Times reports that demand for commodities in China is slowing down -- dropping from 11% to 9%. And this could be contributing to the plunge in commodity prices (about which I posted here). This could lead to more failed hedge funds and be painful for many companies. But it would be great for consumers.
The Times reports that Chinese factories reported "a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China." And it suggests that slowing Chinese factory demand is leading to price drops in commodities including gasoline, "copper, tin, zinc and aluminum."
Three examples from the Times illustrate the effects of the slowdown:
- Luggage. Union Bags, a Chinese luggage maker, said sales to the U.S. had "dropped 20 percent in the last year." This has led to cutbacks in Union's orders to its local suppliers of "zippers, nylon and polyester."
- Cars. Automobile demand in China is growing more slowly. "J. D. Power and Associates cut its forecast for car sales in China this year to 5.95 million -- still up from 5.42 million last year, but much less of an increase than the company's previous forecast of 6.2 million."
- Real estate. China's real estate bubble seems to be bursting. In Shenzhen, a city of at least 12 million people near Hong Kong, "residential real estate prices dropped by 10 percent over the last year in desirable neighborhoods near the city center and nosedived by up to 40 percent in outlying" areas.
SemGroup might be the first commodity trader to perish in the wake of tumbling prices. It will be interesting to see whether others follow. But as prices of commodities tumble, it will be good for consumers. Unfortunately, if Chinese demand drops, it may no longer have the urge to buy from big U.S. exporters who have been benefiting from the weak dollar to sell to Chinese firms.
This could be an important new trend.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Retailers can't wait for Black Friday, open Thursday
