Goldman Sachs said it no longer saw China as the center of commodities pricing, reasoning the pace of demand recovery in developed markets suggested Beijing as a buyer has been crowded out by Western consumers.

“The bullish commodity thesis is neither about Chinese speculators nor Chinese demand growth. It is about scarcity and the DM-led recovery,” the bank said in a note dated May 27.

While commodity prices fell after Chinese warnings over onshore speculation, “the fundamental path in key commodities such as oil, copper and soybeans remains orientated towards incremental tightness in H2, with scant evidence of a supply response sufficient to derail this bull market.”

The market is beginning to reflect this, as copper prices are increasingly driven by Western manufacturing data rather their Chinese counterparts, it said.

“This is a role reversal from the bull market of the 2000’s, with China now the incumbent consumer as the U.S. was when emerging Chinese demand squeezed out marginal U.S consumers,” Goldman said.

China is the world’s biggest market for copper, coal and iron ore.

Earlier this month, China’s cabinet said Beijing would manage “unreasonable” price increases for copper, coal, steel, and iron ore.

Those commodities, of which China is the world’s biggest user, have surged this year on rising demand as lockdowns to curb the Covid-19 pandemic have eased and government stimulus has boosted consumer spending globally.

Goldman said the immediate reason for the greater U.S. pricing power is the large U.S. fiscal stimulus that is absent in China, adding that China no longer benefits as much from its comparative advantage in low-cost labour and global trade.

“This ultimately creates a weaker margin setting onshore. With scarcity starting to generate shortages and higher prices, the Chinese are the first consumers to be priced out”.

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