Chinese Appetite for Commodities Returns Despite Decline in Economic Activity


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May 02, 2015 – China has again regained its appetite for commodities. Market data shows that the demand for a wide range of commodities has been again on the rise for the first quarter this year despite waning economic activity in the country.

The demand for oil grew by 7.7% which represents its biggest gain in two years. Similarly, imports of iron ore surged by 18.5% in March after being in the decline for the previous two consecutive months. Demand of Refined copper metal also rose as imports rose to a four months high in April building on an 11% rise in copper consumption in February. In the precious metals sector, March platinum demand increased by 26% as compared to previous year due to which it hit its highest since Dec 2013.

The increase in commodity demand is surprising as it is at odds with its economic growth indicators. According to HSBC’s PMI (Purchase Manager Index) survey, manufacturing activity remain subdued in March. Industrial production also performed its worst as the first quarter GDP hit a six year low.

So, what may be fueling demand for commodities in China?

According to a report by Barclay bank, the rising demand in commodities may be due to increase in government spending citing more than 300 infrastructure projects that are slated for the year. The report further stated that although fixed asset investment declined, year to year infrastructure investment rose by 2.3% in March this year. The biggest inflows were seen in metal intensive sectors such as transportation, public utilities, energy, and water conservation projects.

Moreover, the latest Silk Road initiative is attracting investment in various sectors including transport infrastructure that is fueling demand for related commodities. Where things will go from here isn’t clear, but one thing is sure that the commodities price will see a great upsurge in prices due to the rising appetite of the Red Dragon.

Source: http://www.reuters.com/article/2015/04/13/china-economy-trade-commodities-idUSL4N0XA1XA20150413

 

 

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