Copper continued to fall after yesterday’s 3.5% plunge, iron futures were down limit, and nickel dropped 2%.
Infrastructure and housing construction in China provide the marginal demand for industrial metals in the world markets, and the credit-driven boom in these sectors motivated a rally in metals. With growth comfortably above the 6.5% target, China can afford to concentrate its attention on credit problems and housing market overheating, which implies shrinking demand for metals.
The chart shows China’s industrial PMI vs. the S&P/Goldman Sachs Industrial Metals Spot Index. With Chinese growth moderating from the first quarter’s 6.9% annual growth rate (and perhaps even faster, according to New York Fed economists), the metals boom is over for the time being. That’s good for commodities importers (Asia, Turkey) and bad for the Latin Americans.