Beijing: China is a long way from satisfying the voracious appetite that has powered a five-year global bull market in commodities from iron ore to soybeans.
With the main commodity futures indices well below last year’s highs, efforts by China to reduce its reliance on imported raw materials have encouraged those sceptics who scoff at talk that a long super-cycle in commodities is now well entrenched.
But most analysts see things differently. They say it’s no accident that China has accounted for over 60% of the increase in world demand for many commodities in recent years.
China is undergoing the greatest migration from the land to the cities the world has seen, generating demand for steel to build skyscrapers and cars and for copper to carry electricity.
And the new armies of urban industrial workers, their ranks swelling by about 10 million a year, are spending more of their higher wages on meat, underpinning the price of grains.
“Most commodities in China still look extremely bullish and China’s influence looks fairly positive,” said Adam Rowley, a commodities analyst with Macquarie Bank in London. “On trend, we would see China as an unstoppable force in these markets.”
In weighing up China’s importance for global commodities, a comparison with fast-growing India, which also has a population of more than1 billion, is instructive.
Both could use about 10% more copper this year, Malcolm Southwood of Goldman Sachs JBWere said. While that would boost Indian demand by 35,000 tonnes, China’s consumption would soar 400,000 tonnes, he said.
China’s economy is likely to grow by 10.9% this year, marking the fifth straight year of double-digit expansion, a top government think tank said on Wednesday.
To support growth, China in 2006 added electricity-generating capacity that was almost as much as France’s existing capacity.
Yet, befitting a developing country, China’s consumption of commodities is still low. It uses less than 2kg of aluminium per person a year, compared with 12-14kg in Japan and North America.
“As long as you have growth continuing at the rate it is now, and the industrialization in China, I don’t see the demand for metals coming off at all,” said Helen Henton, head of commodities research at Standard Chartered Bank in London.