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Why China’s Slowdown Won’t Crush Commodities Markets

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Nowadays, when China sneezes, the rest of the world catches a cold, and this is true with its demand for raw commodities. According to the World Economic Forum in 2015 China consumed 54% of global aluminum, 31% of cotton, 23% of gold, 17% of wheat and 10% of sugar. But it seems the largest consumer of the world’s commodities could go on a diet, as growth drops to 6.5%, debt balloons and regulators clamp down on futures market speculation. How much will that hurt commodity prices given that roughly 1.4 billion Chinese still have to be fed, clothed and kept warm and many now expect a working infrastructure?

We asked some commodity analysts for their views on how China’s crackdown on speculation and economic slowdown will affect key commodity complexes and prices going forward.


Although China is the largest consumer of coal in the world, in April 2015 it also became the world’s largest importer of crude oil, surpassing the United States, purchasing 7.4 million barrels a day.

According to the OPEC April 2016 report, Chinese crude oil imports in February 2016 were 8 million barrels a day, representing a 27% jump over January imports. Its largest suppliers are Saudi Arabia (17%), Angola (15%) and Russia (12%), according to the OPEC report.

In addition, petroleum product imports increased dramatically. So despite the cooling economy, China still has a growing appetite for oil. OPEC also noted that a growing Indian economy would pick up the slack from any decline in Chinese oil imports.

Dan Dicker, energy trader, author and TV prognosticator, had this to say about China’s energy needs: “The Chinese have a habit of buying and storing commodities not based upon their needs, but upon their ability to think they know where the bottom of prices are likely to fall. They’ve done this (somewhat successfully) with copper for years, and it looks like they’re doing it with oil right now. 

“What does this mean for the prospects of the Chinese economy?  For me, it says that the Chinese aren’t much worried and they think they have several tricks left up their sleeve to assure a soft landing at worst — and are willing to part with cash to reload on raw commodities here at low prices.” 


Although the government is clamping down on China’s commodities exchanges, China still consumes a lion’s share of key base metals. The World Economic Forum states that in addition to consuming 54% of the world’s aluminum, China accounts for about half the global consumption of nickel (50%), copper (48%), zinc and tin (46%), steel (45%) and lead (40%). Given these statistics, how much will China’s slowdown reduce the need for the base metals and pressure prices on the downside?

Ed Meir, director of the Commodity Research Group in New York and one of the top base metals analysts in the world, said:  “There is no doubt that real Chinese metals demand plays a huge role in driving metal prices. Our research points out that the country buys about 45% to 55% of each of the base metals we write about. No one else comes close.

“In some cases, however, it is hard to distinguish real demand from actual demand. For example, in copper’s case, imports of refined cathode are up 30% from a year ago, but real demand is up anywhere from 2% to 4%. This tells us that the metal being brought in may not necessarily be consumed but, rather arbitraged, financed or stockpiled. So things get a bit murky.

“Putting that aside, the fact that real Chinese demand has slowed is not in dispute and has been the main reason why base metals have been so weak despite all the other ‘stuff’ that is going on. More recently, we have seen prices moving higher, but this is more on account of a weaker dollar, with some support also evident from the fact that Chinese physical demand has been picking up slightly given the recent uptick in construction and stimulus spending.”


A major importer of soybeans and corn, China doesn’t seem to be slowing down on consumption of food. Its imports and consumption (crush) of soybeans doubled to 87 million metric tons (MMT) for the 2016/2017 crop year from 40 MMT in the 2008/2009 crop year, according to the USDA. Consumption is up 26% since 2013/2014, and imports are up 23% for the same period.

This consumption isn’t limited to soybeans. Chinese corn consumption trends also are strong: between the 2008/2009 crop year and the current 2016/2017 crop year, the USDA projects a 48% expansion to 227 MMT. Even during recent periods of high corn prices, Chinese feed manufacturers got better quality and lower prices for corn imported from the U.S., Brazil and Ukraine, adding to their stocks. 

Jerry Gidel, chief feed grain analyst for Rice Dairy LLC in Chicago, says, “This has prompted a clampdown from Beijing and a drop in imports from 5.5 to 2 MMT this year, and the USDA forecast of only 1 MMT the coming year. I wouldn’t consider this drop in Chinese demand given the 64 MMT strong consumption from 2008/2009 to 2015/2016.  

“Overall, China has experienced some slowdowns in their industrial demand for copper, iron ore and crude oil over the past two to three years because of world economic difficulties. However, the general trend of expanding agricultural demand has remained surprisingly strong for feed and protein.

This has occurred because of China’s expanding middle class and its desire for more meat in their diets. To accomplish this need, the government has embraced Western livestock feeding methods in pork and poultry, which means more compound feed made from corn and soybean meal. Given the expanding middle class desire for more protein-enriched foods vs. starches like rice and noodles, this trend is likely to continue for the foreseeable future. There will be some hiccups in the road, but the desires of 1.4 billion people cannot be ignored.”

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