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China has decided to take global commodity bulls by their horns ⁠- to protect the small businesses

The government in Beijing has ordered its state firms to stop buying commodities like iron ore, copper, aluminium, zinc and others from foreign countries, according to a Bloomberg report, which cited sources it didn’t name.

This has led to a sharp dent in sentiment in global commodity markets. Even in India, the metal stocks, which were in the middle of a historic rally, took a dive soon after the news broke.

The expectation from the Xi Jinping administration is that in the absence of big buyers from China, global prices of raw materials will fall. Therefore, the smaller businesses will get a better price for the inputs, and be able to protect their profit margin.

China has been increasingly wary of the global surge in prices of key raw materials used in industry. Since the pandemic has curbed the consumer’s purchasing power, companies have not been able to pass on the rising cost of commodities, and therefore, the profit margins are getting squeezed.

Last week, the cost of raw materials, measured by the producer price index in China, hit the highest level in 12 years.


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