Fears over China’s slowing growth so far in 2014 have hurt prices for industrial commodities like iron ore and copper. But agricultural commodity prices have held up, in part due to robust Chinese demand for food.

Copper prices have dropped 12% this year; prices for Brent crude have fallen 4%. There are many factors at play here, but concerns over a slowdown in Chinese industrial production, as the Communist Party shifts gears to move away from investment in heavy industries, is a major one.

Worries over China’s debt-laden financial system have added to the downward pressure, as investors have used industrial commodities to back loans, and banks are starting to call these in, leading to forced sales of commodities onto the market.

At the same time, palm oil, which is used in everything from cooking oil to household detergent, has climbed 3% this year. Soybeans, whose oil is used in cooking, are up almost 10%. And wheat, another major staple in China, has climbed more than 11%.

Again, there’s more than just Chinese demand affecting these commodities. Dry weather in Brazil and Southeast Asia has hurt supply of palm oil, as has strife in Ukraine, the world’s largest producer of another cooking oil substitute – sunflower oil.

Still, China’s growing middle class, and the urbanization trend, are helping keep agricultural prices on firmer ground.

Industrial commodities could well stage a recovery, not least because China’s push to move millions of people to its cities in coming years will spur the building of homes and infrastructure.

For now, though, it seems like China’s tilting away from reliance on investment to a more consumer-powered economy — coupled with massive new supply of iron ore and other ores – is bad for industrial commodities.

The trend is a double-edged sword for China. Lower prices for iron ore could push down costs for steel makers. But higher prices for agricultural commodities make it tougher for average Chinese consumers and could spur inflation.

For some countries that supply China with commodities, the divergence in prices also are a mixed blessing.

In Indonesia, for example, robust prices for some commodities could delay efforts to diversify out of basic industries.

Indonesia is one of the world’s largest exporters of palm oil, so higher prices are good news in a country that has been having trouble filling a current-account deficit.

But some economists and policymakers fret the resources boom of recent years has hurt Indonesia’s industrial development. While manufactured exports accounted for 63% of Indonesia’s exports in 2003, according to ING, by 2012 the resources boom had driven that down to just 52% of Indonesian exports. Palm oil, on the other hand, rose to 9% from 4% of exports. And mining products soared to 17% from just 6%.

Some observers, including the World Bank, are hoping the end of the so-called “super-cycle” in commodities would help reverse the trend. And last month, Indonesia imposed a ban on exports of unprocessed raw mineral ores, partly to help the process along.

To be sure, palm oil prices are still off highs reached in 2008. But the current spike has pushed prices back to levels not seen since 2012. And that might deter the much-needed move to boost manufacturing.

The Wall Street Journal