China’s Price Controls Won’t Crash a Booming Metals Market
David Fickling, 17 June 2021
China’s government is on a campaign to rein in prices for industrial metals. If it wants the plan to work, it needs to address the cause, not the symptoms.
State-owned companies have been ordered to control their risks and limit exposure to overseas commodities markets, people with knowledge of the matter told Bloomberg News this week. Government stockpiles of copper, aluminum and zinc will also soon be released to fabricators and manufacturers, a measure that could be expected to reduce prices.
It’s unlikely to play out that way. Like any investor caught on the wrong side of a trade, the Chinese government would like to think prices are being driven by nefarious speculators disconnected from reality. In truth, they’re moving because of activity in the real economy that won’t stop just because an official is ordering the tide to turn.
To see why, consider what happened in August 1971 when Richard Nixon imposed controls on wages and prices in an attempt to curb rising inflation in the U.S. See if you can spot that moment on a chart:
