Weak commodity prices add uncertainty to Chinese economy

BEIJING - Commodity prices could reduce costs for Chinese manufacturers, but deflation may undermine the steadying economy.

Crude oil prices on the New York Mercantile Exchange are still mired near a four-month low. On the London Metal Exchange, three-month copper has collapsed by about 18 percent over the last ten weeks. Other base metals are also weak.

The World Bank predicted in its quarterly commodity markets outlook that energy prices will average 39 percent below 2014 levels this year, metal prices will be 16 percent down, with iron ore plummeting by 43 percent.

"Weak commodity prices are obviously good for Chinese companies, whose production costs will be lower," said Zhu Runyu with brokerage house CITIC Futures.

China's crude oil imports jumped 27 percent in June to 29.5 million tons, after President Xi Jinping suggested increasing crude reserves during a visit to an oil depot.

Chinese refiners are among the winners as the average price of crude oil imports is down more than 45 percent in the first half of this year, according to the General Administration of Customs.

"Low price levels will provide room for monetary easing, without worrying too much about stagflation," said Zhu.

Other analysts do not necessarily share Zhu's opinion.

Economist Fu Peng said lower costs "just theoretically" benefit production. In truth, many factories have halted production.

"Weak commodity prices help them little. Rather, these companies will even suffer more from falling prices of finished products and their profit margins will be squeezed," said Fu.