China’s manufacturing industry received a much-needed boost… At the end of March 2024, the country’s official Purchasing Managers’ Index (PMI) rose to 50.8 – up from 49.1 a month earlier. Not only is this the first time China’s manufacturing activity has expanded in six months… But it’s also the highest level since March 2023.

So, what could this mean?

A sign for higher commodity prices, thanks to China’s manufacturing

Manufacturing is a key segment of China’s economy. It represents around 28% of China’s GDP.

Investors keep a close eye on this data as it can impact commodity prices.

After all, China produces, imports and consumes most of the world’s major commodities.

Just to give you some examples…

China is the top importer and the second largest consumer of crude oil.

They’re the largest producer and consumer of aluminium.

They’re the world’s top steel producer and as a result, the largest consumer of iron ore (which is used in steel-making).

And they account for about half the world’s copper consumption.

My point is a recovery in China’s PMI typically signals an economic recovery and thus, a boost in demand for commodities. It could also help boost SA’s growth as we’re China’s largest trading partner.

Since the release, oil and copper have trended higher. The latter reaching a 14-month high at $9,380 per tonne.

While this could be seen as good news for low-cost commodity producers who can make more money from higher prices…

It’s bad news for inflation!

Higher commodity prices drive inflation up…

Take oil for example…

A higher oil price means higher petrol prices for consumers…

And it also means higher production and transport costs for some companies, which impacts the final prices of goods and services that consumer buy.

Ultimately, it puts strain on an already tight consumer budget.

It also doesn’t help that higher inflation means central banks have to re-think their plans of lowering interest rates.

In short, I expect inflation and interest rates to remain higher for longer.

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That’s by owning a company that benefits when inflation rises.

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