Jeff Desjardins reports that over the last 20 years, the world economy has relied on the Chinese economic growth engine more than most people realize. The 1.4 billion people living in the most populous country (China) account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes huge amounts of materials, energy, and food. That is why the prospect of slowing Chinese growth is likely to continue as a source of problems for investors focused on the commodity sector.
The country consumes a big proportion of the materials used in infrastructure. It consumes 54% of aluminum, 48% of copper, 50% of nickel, 45% of all steel, and 60% of concrete. In fact, the country has consumed more concrete in the last three years than the U.S. did in all of the 20th century.
China is also prolific in accumulating precious metals, the country buys or mines 23% of gold and 15% of the total silver supply.
With many mouths to feed, China also needs large amounts of food. About 30% of rice, 22% of corn, and 17% of wheat gets eaten by the Chinese people.
Lastly, the country is no hack in terms of burning fuel either. Notably, China uses 49% of coal for power generation as well as metallurgical processes in making steel. It also uses 13% of the total uranium mined and 12% of all oil produced.
These facts really hit home to show how important China is to the global consumption of raw materials. If China is unable to navigate its tricky transition to a consumer-driven economy and has a hard landing, it will be unlikely to see any growth in commodity prices triggered from the demand side for some time to come. That said, supply is equally as important and it tells a different story, with companies like Glencore cutting copper production by 400,000 tons to better service its massive debt, the floor for many commodities.
Resource Portal for I2M Clients, Associates, and Geoscientists
Managed & Built by I2M Consulting, LLC | © 2010-
Managed & Built by I2M Consulting, LLC | © 2010-