China Evergrande Group may go bankrupt due to the increased risk of debt default. Investors worry that China’s economy and demand for construction and raw materials will be suppressed. Commodity prices, including iron ore and copper, fell on Monday (20th).
Phil Flynn, a senior analyst at Price Futures Group, said that the “worries about ever-deteriorating concerns” surrounding Evergrande Group have triggered panic about China’s economic crisis and put downward pressure on the prices of many commodities consumed in China.
Flynn said: “What is important among these issues is whether Evergrande will become the Chinese version of “Lehman Moment”, leading to more serious systemic risks than China expected, and whether China can control the emergence of this crisis. The evil consequences.”
He said: “For now, it is too early to call this a major crisis, and the market may over-exaggerate the risks faced by commodity demand. Only time will tell.”
The most actively traded December iron ore futures (62% iron) contract on the Chicago Mercantile Exchange (CME) closed down 8.3% on Monday at 91.75 per ton. DollarAccording to Dow Jones Market Data, this month’s decline may reach 37%.
The most actively traded December copper futures fell 0.13 on Monday DollarOr 3.1%, 4.115 per pound Dollar, Which has fallen 6% so far this month. In contrast, safe-haven buying pushed up gold prices on Monday.
Adam Koos, president of Libertas Wealth Management Group, said that if Evergrande Group really collapses, supply and demand in the metal market may suddenly fall into a serious imbalance, which will favor shorts, not to mention other default events that may occur.
Koos said that futures traders are wondering if this is a one-off event. If other developers announce similar news, the atmosphere of panic may spread to the entire financial market in China, leading to potentially catastrophic selling.
Jay Hatfield, Chief Executive Officer of Infrastructure Capital Management, said that the possibility of Evergrande’s default increases the possibility of a slowdown in China’s economy in 2022.
Hatfield said that China’s economic slowdown will in turn increase the possibility of the U.S. economy falling into recession next year. China is the world’s largest importer of oil and iron ore. Therefore, any slowdown in China’s economic growth will reduce the demand for these commodities.
Oil prices fell on Monday, and US West Texas crude oil futures prices for October delivery fell 1.68 DollarOr 2.3%, quoted at 70.29 per barrel Dollar. British Brent crude oil November or contract price fell 1.42 Dollar, Which is equivalent to a decline of 1.9% to 73.92 per barrel Dollar。
At the same time, Rob Haworth, senior investment strategist at US Bank Wealth Management, said that commodities related to the steel industry are more worrying because the commodity is “affected by the new restrictions imposed by China’s Xiamen and Fujian provinces to combat the new crown epidemic.” The product with the greatest impact.
Haworth said that from a macro perspective, Evergrande’s debt problems may lead to “cautious real estate markets and restricted construction activities, which will weaken the demand for key commodities”. Haworth also said that although the current Evergrande incident will indeed ease short-term economic growth, he still holds a positive view of the global economic outlook.
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