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Nearly a yearlong bull run among industrial metals is faltering this month as the unwinding of a massive stimulus in China slows demand, underscoring the increasingly pivotal role its state-led economy plays in global commodity booms.

China last year put some $500 billion in state investment to prop up its pandemic-pummeled economy. The stimulus drew massive imports of everything from crude oil to steel. With Beijing wanting to be a global leader in clean energy, many in the resources industry viewed the boom as the start of a yearslong growth arc, or “supercycle," especially among metals crucial to electrification and batteries.

A budding global economic recovery helped the rally. But China, which accounts for as much as 60% of the world’s resource consumption, has in recent weeks pulled back from its investment-led playbook, as policy makers refocus on containing bad loans and retooling the economy onto a consumer-led footing. Amid fresh concern that some battery-making metals could be globally oversupplied, benchmark metals fell in March from records a month earlier—nickel by 18%, cobalt 13% and copper 9%.

“You’d call it a supercycle only if you forget about the corrections," said Alicia Garcia-Herrero, Asia-Pacific chief economist at investment bank Natixis. “The fundamental signs are of a cyclical recovery, but we are also talking about a world that needs less commodities."

Chinese purchases had spurred rallies in many metal markets in the 12 months to late February, doubling some prices from pandemic lows. Copper imports last year rose by 34% year-over-year to a record 6.7 million metric tons. Cobalt imports were up 45%. The vast shipments shook other parts of the world, with home-appliance makers in India, for instance, scrambling to find copper. Electric-vehicle producers outside China fretted over battery supplies. Japan maxed out its power plants as it ran low on natural-gas imports.

“We were experiencing cost increases of 15% to 20% compared with November," said Kamal Nandi, business head of Indian manufacturer Godrej Appliances, which depends on imported copper to make air conditioners. “Most of the mines had not projected this sort of demand, and had not kept their production full."

The imports drove profit in global mining. BHP Billiton Ltd., the world’s largest miner, last month posted a record half-year dividend. LG Chem Ltd., battery supplier to electric-vehicle maker Tesla Inc., reported its 2020 profit nearly tripled year over year. China makes half of the world’s electric vehicles.

“There’s a difference between the cycle of the last year and the supercycle," said Tomas Gutierrez, analyst for metal consultancy Kallanish Commodities. “What’s coming is particularly good for battery material, and the first one to benefit is probably going to be electric vehicles."

But unlike bulk resources like iron ore and crude oil, China is much less reliant on global markets for the building blocks of battery technology. China dominates the supply and processing of metals for mobile electrification. It is heavily investing in finding alternatives to the conductive material it lacks, such as by using aluminum—China has plenty—in place of copper, on which it is heavily dependent on imports. Beijing is pushing for carbon neutrality by 2060, and has built up overseas resources especially in cobalt, lithium, and nickel—the essential trio for batteries.

“For Beijing, energy independence and decarbonization are inseparable: By winning the clean energy race, China can cast off the shackles of its reliance on others, and dominate the resources and technologies the world needs to decarbonize," consultancy Wood Mackenzie said in a March report.

Among the most tightly supplied of such metals globally is copper. But even so, copper imports to China had eased by December off midyear highs, down 9% that month compared with November. Imports of lithium-cobalt oxide, the bluish-gray crystal used in rechargeable battery electrodes, were down 14% for the year compared with 2019. Nickel ore imports in 2020 fell 30% year over year.

Manufacturers reliant on copper aren’t expecting longer-term shortages. “I think this shortage won’t last beyond two quarters," Godrej’s Mr. Nandi said. “A lot of material substitution and research is happening in these areas."

In early March, nickel prices, which had soared for months on China’s projected battery demand, plummeted 9% in a single day, hours after Chinese metal producer Tsingshan Holding Group announced plans to cheaply supply large volumes of nickel matte, a battery ingredient, to Chinese battery makers—damping industrywide expectations of battery-grade nickel shortages.

Also weighing on prices: U.S. miners are racing to develop new supplies of lithium, in part to lessen dependence on China, which analysts estimate controls around half the world’s lithium output and makes three-quarters of its lithium-ion batteries.

The world’s last supercycle peaked around 2011, as China’s economy slowed on soaring corporate debt, overbuilt infrastructure and industrial overcapacity, which weighed on commodity markets for years. Beijing now is confronting similar structural problems, including an overheating housing market, and is readying measures likely to temper rampant expansion—and commodity consumption.

“Can China continue to demand the same amount of commodities? To me, the answer is no, because its structural growth is coming down," Ms. Garcia-Herrero said. “This doesn’t bode well for supercycle."

This story has been published from a wire agency feed without modifications to the text.

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