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Interpreting China’s Enigmatic Commodity Market

China has been at the forefront of all commodity forecasts after it decided to drop its zero-Covid policy and reopen late last year.

Initially, pretty much every analyst expected the country’s economy to come roaring back to strong growth. Then expectations began to be revised as the first post-pandemic figures emerged. And these figures are not painting as clear a picture as commodity traders would have liked.

Crude oil demand, for instance, hit a record high earlier in the year, topping 16 million barrels daily. Yet manufacturing activity shrank in May while everyone expected it to continue growing uninterrupted.

GDP for the first quarter stood at 4.5%, the fastest growth rate since early 2022. Yet some analysts had expected an even higher number, so many commodity traders started selling their holdings, expecting a reversal of growth.


Copper demand in China remains subdued, fueling concern that Asia’s largest economy is not moving back up in a smooth curve as analysts appear to have predicted it would, however unusual that would be in a real-life situation.

The latest commodity import figures support the unequivocal picture of China’s economy: oil and iron ore imports in May suggested strong demand, while copper and coal imports cast doubt over the causes of that strength.

Reuters’ columnist Clyde Russell summarized the data in a recent column, noting crude oil imports of 12.11 million barrels daily as an average rate last month. This was an increase of about 800,000 bpd on the month and close to the two-year high booked in March.

If crude oil imports are that strong, then the economy should be firing on all cylinders, would be the obvious assumption. Yet if copper imports are weaker in the same period, the assumption is difficult to make. Copper imports in May marked an annual decline but a monthly increase, to reach a little over 444,000 tons.

Weak copper demand suggests construction activity is not expanding as fast as many would have hoped, and copper demand in China fell by 11% over the first five months of the year from 2022.

At the same time, the increase in crude oil exports could be driven by discount crude from Russia, Iran, and Venezuela, and Chinese refiners stocking up on the commodity while prices are low.

Iron ore is no good as an indicator of where China’s economy is going, either, according to Russell. He reports that iron ore demand has held up, but mostly because China produces so much of the world’s steel: over 50% of it.

It looks like it is impossible to get a clear picture of China’s economic prospects and, based on those, a clear picture of the outlook for the world’s most traded commodities. That’s probably unfortunate, but it should not have been a surprise.

The confident forecasts that analysts made about post-pandemic China seem to have all been based on the fact that the Chinese government can intervene directly in economic activity to stimulate growth. It has done so on numerous occasions.

What those analysts seem to have overlooked is two facts: first, that even the Chinese government cannot intervene all the time, everywhere; and second, that growth troubles in some of China’s biggest markets would not be without consequence for the Asian powerhouse.

Perhaps the key to solving the great China commodity conundrum is to revise expectations and strong government intervention.

If the EU is slipping into a recession because its biggest economy is already in one, then one might reasonably expect that Chinese companies supplying goods to the EU would not rush to ramp up production.

If industrial activity in the U.S. is shrinking, it would be safe to expect Chinese companies still doing business with the U.S. will not be making production expansion plans for the short term.

Assuming growth for growth’s sake and then getting surprised when it does not happen is perhaps not the best strategy for anticipating future market developments in any commodity.

By Irina Slav for

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