Bank of America Merrill Lynch: Exaggerating China's Factor in International Corn Prices

The Bank of America Merrill Lynch economists said that the soaring price of international corn (2388, -16.00, -0.67%) was mainly driven by soaring oil prices, and the Chinese factor was exaggerated; the earthquake in Japan had a limited impact on Asian economies.

Bank of America Merrill Lynch wrote on the 28th, the National Development and Reform Commission (NDRC) price monitoring center recently predicted that China's March CPI increase may reach 5%, the average for the first half of 4.9%, will fall back in the second half. It is unlikely that China’s commodity prices will rise further.

Lu Ting, an economist at Bank of America Merrill Lynch, commented that the above predictions are basically in line with Merrill Lynch, although we believe that the March CPI increase may be as high as 5.5%. At present, some macroeconomic analysts predict that the CPI annual rate will peak in June (but in fact it will be a sudden drop due to the base period effect). In addition, there are people who warned that inflation will return to temperature in March and accelerate in the future.

China’s speculation on returning to the international corn market rose to 14% last week. Private exporters finalized a 1.25 million-tonne corn deal but did not disclose the export destination. Lu Ting said that although some media seem to think that China’s purchase It is the main driving factor for the rise of international food prices, but the Bank of America Merrill believes that China’s influence has been exaggerated in most cases.

China's grain imports (mainly imported from soybeans (4521, 31.00, 0.69%)) accounted for only 5% of total consumption. Although real GDP increased by 270% from 1996 to 2010, the increase in grain imports was only a few percentage points.

From 1996 to 2007, global grain prices have been fairly stable. In 2008, global food prices rose sharply. China's domestic prices remained stable. It can be seen that China was not the driving force behind the rise in grain prices at that time.

Although Chinese food prices, especially vegetable prices, have risen sharply, most of the vegetables are non-tradable, and the increase in vegetable prices is mainly due to relative price changes caused by labor shortages. This round of soaring corn prices is likely to be driven by rising international oil prices.

According to Bloomberg's report that after the Japanese earthquake disrupted smelter production, China's zinc exports to Japan may increase. The report quoted Li Zhihua, chairman of Shanghai Eagle-Metals Co., Ltd., as saying that "after the earthquake in Japan, our zinc orders surged." He also said that after some smelter production was interrupted after the earthquake, traffic may be a problem, so some buyers are looking for sources of goods from China.

After the earthquake and tsunami in Japan, zinc smelting companies suspended production, including Mitsui Metals, Tongwa Holdings, and Toho Lead. According to Bloomberg calculations, the total scale of affected production capacity reached 451,200 tons. China is currently the world’s largest zinc producer and consumer.

Lu Ting said that the Japanese economic analysis team of Bank of America Merrill Lynch once again lowered its 2011 growth forecast from +0.9% to +0.5% (pre-earthquake prediction was 1.6%) last Friday due to a shortage of electricity supply. The proliferation of radioactive material released by the Fukushima nuclear power plant has also brought downside risks to the economy, and food exports and tourism are therefore likely to suffer heavy losses.

Despite rising concerns about supply chain disruptions, Bank of America Merrill Lynch still believes that the impact of the earthquake in Japan on emerging Asian economies including China will only be short-term and moderate.

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