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Boris Ivanov

China’s 20th party congress was watched intently by investors, governments and businesses as President Xi Jinping secured an unprecedented third leadership term and outlined his vision and ambitions for the country.
Given that China is the biggest commodity consumer in the world by virtue of its population and growth, its economic health has a great bearing on commodity prices, particularly for metals and minerals.
But China has been facing challenges to its rapid economic growth and is experiencing a structural slowdown. Part of this is due to its zero-Covid policy, which has plunged large cities, including the financial and manufacturing hub of Shanghai, into full or partial lockdowns that have delayed recovery.
There was no indication from Xi during the congress that the policy would change. Some expect the zero-Covid policy to be further entrenched. This would be sad news for investors and producers of metals and minerals, from iron ore to crude oil, who prefer less draconian policies that would not sap commodity demand.
China is worried about the increase in oil and commodity prices, which is driving up the cost of living. But Xi’s policies seem to prioritise national security and military growth, and an increased focus on science and technology, rather than economic growth. The International Monetary Fund has warned that a sharp Chinese economic slowdown is expected to drag on growth across Asia till the end of next year, deepening an already pessimistic global outlook.
Demand for core construction metals such as aluminium and copper has already been affected by China’s deepening property crisis. As China accounts for about 60 per cent of global aluminium and copper demand, this has contributed to a plunge in prices.




Ongoing challenges such as supply constraints from Chile and Peru, power shortages in some of China’s metal-refining regions, the shutting off of energy-intensive smelters amid record-high energy costs (particularly for aluminium, one of the most energy-intensive metals to process), and fears about an imminent global recession have also contributed to a sharp decline in copper and aluminium prices.
More price volatility can be expected as the energy transition unfolds and global commodity demand shifts from fossil fuels to metals.
Metal prices are expected to fall by 15 per cent next year, following a marginal decline in 2022 due to weakening global growth and China’s economic slowdown. Given the ongoing global metal price swings, metal-exporting countries will need to plan for appropriate policy and/or market responses to make the most of any growth opportunities while limiting the impact of price volatility.
Without more marriages to save it, China’s property sector must downsize
While China’s infrastructure investment plan could support prices, the long game for metals is the energy transition and boost for renewables – both of which are metal-intensive.
Aluminium, copper and nickel – needed to make electric vehicles, batteries and the charging and grid infrastructure – could see stimulated demand next year depending on how the energy transition unfolds and the level of government investment in green transition technology.
For exporting countries, the energy transition may bring a large payout, but also open them up to price volatility.


Climate goals continue to be a priority for China, with ambitious plans laid to cement Xi’s legacy and environmental track record. Securing a steady supply of critical raw minerals such as lithium and cobalt will be a key driver, and China is not the only contender in the green energy race.
China is a major producer, processor, consumer, importer and exporter of various commodities, industrial metals and agricultural goods. Its low-cost manufacturing hub and ability to divert investment towards scaling up projects and realising policies has enabled China to become an economic juggernaut.
As China is expected to grow more slowly, this will have an important spillover effect on the rest of the world through trade and financial links. It may also reduce direct demand for other countries’ exports, decrease Chinese investment in the region and drag on global commodity prices.
Iron ore, oil, coal and copper prices react particularly quickly to changes in China’s gross domestic product growth. The resources industry and, indeed, several countries have relied on China’s insatiable appetite for raw materials. This is changing and the world needs to be ready.
Boris Ivanov is a global commodities expert and founder of Emiral Resources Ltd, a mid-sized mining company that focuses on exploring, mining and the production of Earth’s mineral resources and operates in Sudan, Ghana and Mauritania.


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China’s softening demand amid the global energy transition will bring greater volatility to commodity prices
Exporter countries will have to plan carefully to make the most of any growth opportunities


China’s softening demand amid the global energy transition will bring greater volatility to commodity prices. Exporter countries will have to plan carefully to make the most of any growth opportunities.


Commodities

Energy

China GDP

China property

China's economic recovery

Infrastructure

Macroscope

Xi Jinping

Mauritania

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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