It’s been about one month since Chinese Premier Li Keqiang spoke at the World Economic Forum and said that China’s economy is not headed for a hard landing and that it will have no problem meeting growth targets in the near future. Since that time, Chinese commodity prices have been on a tear, with iron ore prices, coking coal prices and Chinese rebar up 18.3 percent, 18.0 percent and 14.5 percent, respectively.

Axiom analyst Gordon Johnson projects those prices could be making a sharp turn lower in the second half of the year.

“We think this rally is largely rooted in speculation, enhanced by inorganic demand via a renewed inventory restock, indicated by low domestic steel inventory and believe Li Keqiang’s comments could suggest the opposite for commodities,” Johnson wrote.

In a new report, Johnson highlighted four reasons why Axiom is skeptical of the Chinese commodities rally:

1. China reported higher-than-expected Q2 GDP growth but left full-year guidance unchanged, suggesting potential weakness ahead in the second half of the year.
2. The government recently took measures to curb bank lending by reducing yields for certain wealth management products.
3. The Chinese real estate market has softened of late with home prices recently declining month-over-month for the first time since February 2015.
4. An uptick in production from key producers could flood the market with iron ore supply in the second half of the year.

Overall, Johnson is…

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