China’s floods to spike global commodity prices

By Zhang Ye Source:Global Times Published: 2016/7/7 23:33:01

Production cutbacks, transport costs affect nonferrous metals

A worker sorts through newly manufactured cables at a factory in Zhoushan, East China's Zhejiang Province. Photo:CFP

Torrential rain and floods along the middle and lower reaches of the Yangtze River are likely to inflate global commodity prices, experts said, as the inclement weather has suspended production and lead to a potential rise in transport costs.

Wuxi Jiangnan Cable Co based in East China's Jiangsu Province has reduced its production to one-tenth of its normal capacity since Tuesday, when heavy rains hit the region, the company told the Global Times on Thursday.

And the Hong Kong-listed company, which annually produces cables worth about 9 billion yuan ($1.34 billion), said it remains unclear when full production could be restored.

"This year's flooding has caused us more damage than in previous years. We have already asked an insurance company to assess and cover some of our losses," a company PR representative told the Global Times on Thursday, without disclosing the amount.

Every summer is China's wet season in the regions along the middle and lower reaches of the Yangtze River.  These regions have been hit 20 times by heavy rainfall since June, the most in history, according to a report sent by China Merchants Securities to the Global Times Thursday.

Wuxi Jiangnan is not alone.

A report by leading metals information provider Shanghai Metals Market on Wednesday says five other nonferrous metal producers from Jiangsu have likewise halted production since the rains struck.

Wuhan Iron and Steel Group has also scaled back on its production since Wednesday morning, and it hopes to restore full production by Thursday night, according to a company statement sent to the Global Times Thursday.

They only account for a small proportion of China's total capacity, but other firms may follow suit if the flooding worsens, Zhang Meng, an analyst at Shandong-based market consultancy Inc, told the Global Times Thursday.

Provinces including Central China's Hubei and Anhui provinces have issued a series of red alerts for more torrential rainfall this week.

Effect on commodity prices

"The prices of global bulk commodities like nonferrous metals and steel are expected to rise in the short term as flooding continues to affect production," Wu Chenhui, a metal analyst at industry consultancy website, told the Global Times Thursday.

Adding to the pressure is potential rise in transport costs, as floodwaters have disrupted transport links, according to experts.

Both Wu and Zhang said this would increase the companies' transport costs and, therefore, commodity prices.

Heavy rainfall and flooding have forced more than 100 trains to take alternate routes or stop in Central China's Hunan Province since Sunday, according to the Xinhua News Agency.

Nickel and copper prices are expected to rise by 10 percent and 7 percent, respectively, in the next three months, according to a report issued by CITIC Securities on Monday. The yuan's depreciation and Brexit could also affect commodity prices, said Wu.

Under such market conditions, share prices of nonferrous metal stocks in the A-share market gained on Thursday. For instance, the Shanghai-listed China Nonferrous Metal Industry's Foreign Engineering and Construction Co closed up to the daily limit of 10 percent to 9.31 yuan. And shares of Shanghai-based Huayou Cobalt Company also rose to the daily limit to close at 45.6 yuan. 

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