China to the rescue?

This week has provided further tentative signs of a revival in commodities demand. China’s industrial production bounced back in April and weekly data in the US suggest that the pick-up in gasoline demand is gathering pace (although it remains very low by past standards). The partial relaxation of lockdowns in Europe should also lead to higher commodity consumption. However, we think that the recovery in global demand will be slow and expect only modest increases in commodity prices by end-2020. The major event next week will be the annual National People’s Congress in China, which kicks off on Friday. It will be interesting to see if a growth target for 2020 is announced, but we will also look for indications of the scale of policy loosening. If there are signs of re-leveraging and a significant expansion of the fiscal deficit, commodity prices should rise in anticipation of a jump up in Chinese consumption.