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China’s Insatiable Demand for Commodities

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China’s Insatiable Demand for Commodities

Despite only having 19 per cent of the world’s population and generating 15 per cent of global GDP, China consumes more than 50 per cent of the world’s steel, copper, coal, nickel and cement. In fact China has used more cement in 3 years than the United States used in the entire 20th century.

China builds a new skyscraper every 5 days and also dominates the world in “supertall buildings” defined as structures with a height greater than 656 feet or 200 meters. For context, New York City has 113 buildings that are defined as “supertall”, while the Chinese completed 77 such constructions in 2017 alone (144 were built worldwide).

China Represents >50 per cent of Global Demand for 5 Commodities

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  1. Cement (59 per cent): Primary ingredient in concrete needed for roads, buildings, engineering structures (bridges, dams, etc), foundations and in making joints for drains and pipes.
  2. Nickel (57 per cent): Mainly used in making stainless steel, which is a corrosion resistant and is also used in super-alloys and batteries.
  3. Steel (50 per cent): Derivative of Iron Ore/Coking Coal and is essentially used in all structures, with demand driven by the construction, machinery and automotive industries.
  4. Copper (50 per cent): Also known as “Dr Copper” for its perceived ability to predict the health of the global economy (copper price is high, the world is healthy, copper price is low, the world is sick). Copper is mainly used in electronics, wiring, construction, machinery and automotive sectors.
  5. Coal (50 per cent): China is currently reducing its coal usage, however with a population of 1.4 billion people, the need for power is significant. That said, it is believed that China has hit “peak coal”, but coal still accounts for 65 per cent of the country’s power generation.

Thus with regards to commodity exposed investments, it is paramount to keep an eye on China and any potential increases (eg. government stimulus, loosening credit, etc) or reductions (eg. weakening Renminbi, pollution controls, etc) in demand as prices can materially change and transform the fortunes of companies that are reliant upon them.

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Amit joined Montgomery Global Investment Management in April 2018 as a Senior Research Analyst after spending seven years as a credit analyst at Credit Agricole and Citigroup, based in New York. Prior to this, Amit was an investment banker with Citigroup for five years in New York and Sydney, focusing on Media and Telecoms; Metals and Mining; and Consumer Products.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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Comments

  1. It often times seems like people think China can ‘stimulate’ their economy without any consequences. But obviously this is not true. So how can they keep affording the commodities for projects which are not economically feasible? My guess is because of their enormous and ever expanding trade deficit with the US. This may lead to what the actual goal of the Trump trade tariffs are. Would it be right to say that if this trade deficit shrinks China will no longer be capable of stimulating their economy as there would be serious consequences?

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