Infographics: China Consumes Mind-Boggling Amounts of Raw Materials

The importance of China on commodities.

From the Visual Capitalist:

Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country 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 mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.

The country consumes a big proportion of the world’s 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 United States 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 world’s 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.

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 world’s uranium and 12% of all oil.

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. 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 commodities could be in.

Just like to add some caveats.

Past performance does not guarantee future results.

While China did play a vital role in the commodity markets mostly via the demand channel, she did so mostly because of government directed and government influenced fixed investment bubbles. The current crash in commodity prices highlights on such excesses as seen through property (ghost cities and projects), infrastructure and industrial capacity.

Second, if the notion that China will shift to a "consumption economy" will hold true, then there will be a lot less demand for commodities in the same way as it had been during the past decades. I may add that this commodity price recovery from fixed investment boom should focus on Africa instead.

Third, I do not buy into the mainstream idea that China needs to shift to a "consumer economy". The implication of which is for Chinese consumers to spend more than they earn via debt accumulation. The Chinese economy is already wallowing in debt. More debt to compound on existing debt for statistical growth?

Yet if everyone spends, then who will produce to satisfy spending? Supply will just appear, like manna from heaven?

Fourth, if global growth will slow, then current dynamics has hardly reflected on further risks of a magnified demand slowdown on commodities.

However, I do acquiesce that once crashing commodities translate to a reduction in supply, eventually commodity prices should bottom out.

Courtesy of: Visual Capitalist