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China’s economic woes, centered around a protracted crisis in the property market, have created an impression that weak real activity will show up in softer imports of key commodities. The reality, however, turned out to be the opposite, with the country now a key driver of global commodities demand, JPM Commodities Research said.
In stark contrast to the wider, faltering macroeconomic growth in the country, the imports of commodities by the world’s second-biggest economy surged 16% in 2023, and staged a strong start to 2024, rising 6% in the first five months of the year, the investment bank said.
The trend, according to JPM, started in 2018 because of growing trade tensions during the Trump administration, but accelerated in 2022 with the start of the Russia-Ukraine war.
According to JPM, China consumes almost 40% of the world’s commodities, up from 23% in 2006, and is highly dependent on energy imports, shipping from abroad more than 70% of its crude oil feedstock and 40% of natural gas.
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Nearly 80% of the raw materials needed to feed China’s copper demand is sourced from overseas while raw material import dependence for aluminum and nickel currently sits around 65% and 95%, respectively, too, JPM analysts noted.
Analysts further argue, although China is a dominant player in global processing of commodities, it lacks sufficient upstream resources to satisfy its demand needs and its ability to control the value chain for major raw commodities has been historically limited.
Additionally, even as China accounted for 60% of the global EV sales in 2023, it relies on foreign suppliers for materials needed to make them, the brokerage added.
Electric vehicle stocks with a presence in China: NIO (NIO), Li Auto (LI), XPeng (XPEV), ZEEKR Intelligent (ZK), BYD Company (OTCPK:BYDDF), Kandi Technologies (KNDI), Tesla (TSLA).
The brokerage further estimates, China’s natural gas storage capacity will reach 85 Bcm by 2030 (16% of demand) on par with the U.S. that has around 130 Bcm of storage capacity, capable of holding about 15% of total U.S. demand. China’s grain storage capacity is in line with that in the U.S.
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