...further headwinds for the commodities markets. Shanghai Mass...

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    ...further headwinds for the commodities markets.

    Shanghai Mass Testing Fuels Concern Another Lockdown Looms

    A woman is tested for Covid-19 in Shanghai on July 5.Photographer: Hector Retamal/AFP/Getty Images
    Bloomberg News
    July 6, 2022 at 10:21 AM GMT+10



    Shanghai is once again mass testing for Covid, fueling concerns that China’s financial hub will find itself back in lockdown in pursuit of Covid Zero.

    Nine districts, as well as some areas in another three districts, will conduct two rounds of Covid mass testing until Thursday in order to “identify and prevent outbreak risks as early as possible,” the city government said in a statement. There are 16 districts in Shanghai.

    The city reported 24 local Covid cases for Tuesday, all of them inside quarantine, authorities said Wednesday.
    There were several infections reported on Sunday and Monday, and a venue in the Putuo district was categorized as high-risk based on the cases’ traveling records, according to the statement. It added that “risky personnel” related to the venue visited many districts and places in the city, posing “risk of potential transmission of the virus in society.”

    The city of 25 million people has just emerged from a brutal two-month lockdown that took an enormous toll on residents and the economy. The quick rebound in cases once curbs were eased shows the difficulty of fully stamping out more contagious virus variants, and explains why only China is still engaged in the effort of eliminating transmission. Its zero-tolerance approach leaves the country stuck in a cycle of disruptive shutdowns and reopenings that hint at lingering economic pain.

    A delivery worker travels along an empty road in Shanghai, in May 2022.
    Source: Bloomberg

    The approach has left China isolated from the rest of the world and most economists predict the country will fail to meet its annual growth target for this year. Lockdowns have already roiled global supply chains and impacted the operations of global giants from Sony Group Corp. to Tesla Inc.

    The country is unlikely to shift its approach any time soon, with President Xi Jinping preparing for a Communist Party leadership reshuffle later this year at which he’s expected to secure a precedent-breaking third term as president.

    “We would rather temporarily affect a little economic development, than to risk harming people’s life safety and physical health, especially the elderly and children,” China’s leader said last week




    Iron ore slumps, economists warn of China slowdown
    Alex GluyasMarkets reporter
    Jul 5, 2022 – 12.27pm


    Iron ore sank below $US110 a tonne amid a fresh wave of COVID-19 infections in China, as concerns intensified that Beijing’s renewed pursuit of its zero-COVID-19 policy will trigger a slowdown in the world’s second-largest economy and stall steel demand.

    The majority of economists in The Australian Financial Review’s quarterly survey cited China’s strict zero-COVID-19 strategy as the biggest risk to its economy this year.

    Parts of eastern China are conducting fresh rounds of mass COVID-19 testing. Getty
    Iron ore futures in Singapore slumped up to 5 per cent to $US108.85 a tonne on Monday, the weakest level since June 23. The price of iron ore traded in the spot market tumbled 5.6 per cent to $US109.90 a tonne, according to Platts.

    The fall in prices has coincided with signs of an oversupply in China’s steel sector, with steel mill margins remaining negative since mid-June.

    This has caused blast furnace utilisation rates in China to continue falling as more mills place their blast furnaces on maintenance.

    “China’s sluggish economic growth and particularly weak steel production suggest that the iron ore price could slide towards $US100 per tonne,” said Bob Cunneen, senior economist at MLC Asset Management.

    Goldman Sachs slashed its three-month price target for the bulk commodity to $US90 per tonne, from $US110 a tonne. It now expects the iron ore price to average $US100 per tonne in the second-half of this year.

    Daily cases of locally transmitted infections in mainland China increased to more than 300 over the weekend, compared with a few dozen in late June. More than a million people remain in lockdown, according to Bloomberg.

    In the eastern province of Anhui, where 287 cases were detected on Sunday, its provincial capital Hefei is doing citywide testing every three days, after last month briefly scrapping weekly test requirements.
    Hitting the brakes

    Economists remain divided about whether China will be able to achieve its annual growth target of 5.5 per cent this year due to policymakers’ conflicting policies of zero-COVID-19 and stimulating the economy.

    ANZ’s David Plank believes China’s gross domestic product will expand by 5 per cent in 2022 because the government will remain “very focused” on achieving growth around that figure and will set policy accordingly.

    Independent economist Craig Emerson and IFM Investors’ Alex Joiner also projected growth of around 5 per cent.
    Saul Eslake expects China to report growth of 4.5 per cent, but warned the actual figure could be lower than that. MLC’s Mr Cunneen said official government statistics will be 5 per cent, but the reality will be closer to 3 per cent.

    TD Securities’ Prashant Newhana said he considers the odds of China missing its official target as high, predicting that annual GDP growth will clock in around 3.5 per cent this year.

    “Should there be a renewed surge in COVID cases, it’s likely authorities will double down on the zero COVID strategy, bringing growth to a standstill,” he warned.

    Yarra Capital’s Tim Toohey was at the lower end of the survey’s range, calling for an annual GDP print of just 2.8 per cent.
    “China’s stimulus is of insufficient size to repeat the policy-led recoveries of the post-GFC era, and the risk of adherence to COVID zero restrictions is continuing to throw sand in the gears of any nascent recovery in economic activity that can be detected,” he said.

    National Australia Bank sat in the middle of the range, pencilling in a 4.2 per cent expansion in 2022, with risks linked to further COVID-19 outbreaks.


    “Beyond COVID-19, the property sector also presents significant risk, as highlighted by the collapse of Evergrande,” said Alan Oster, NAB’s chief economist.

    “Property has an outsized share of China’s economy, and despite efforts to stabilise the sector, residential sales and new construction starts have contracted so far this year.”
 
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