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China’s economic problems, centred on a prolonged crisis in the property market, have created the impression that weak real activity will be reflected in lower imports of key raw materials. However, the reality has turned out to be the opposite, and the country is now a key driver of the crisis. global demand for raw materials, JPM Commodities Research said.
In stark contrast to the country’s broader, faltering macroeconomic growth, raw material imports into the world’s second-largest economy rose 16% in 2023 and are off to a strong start in 2024, rising 6% in the first five months of the year, the investment bank said.
The trend, according to JPM, began in 2018 due to rising trade tensions during the Trump administration, but accelerated in 2022 with the start of the war between Russia and Ukraine.
According to JPM, China consumes nearly 40% of the world’s raw materials, up from 23% in 2006, and is heavily dependent on energy imports, shipping more than 70% of its crude oil feedstock and 40% of its natural gas from abroad.
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Nearly 80% of the raw materials needed to meet China’s copper demand come from overseas, while reliance on imports for aluminum and nickel raw materials currently stands at around 65% and 95%, respectively, JPM analysts noted.
Analysts also argue that, While China is a dominant player in global commodity processing, it lacks sufficient resources to meet its demand needs and its ability to control the value chain of major commodities has historically been limited.
Moreover, while China will account for 60% of global EV sales in 2023, it relies on foreign suppliers to obtain the materials needed to manufacture them, the brokerage added.
EV stocks with presence in China: NIO (NIO), Li Auto (LI), XPeng (XPEV), ZEEKR Intelligent (ZK), BYD Company (OTCPK:BYDDF), Kandi Technologies (KNDI), Tesla (TSLA).
The brokerage also estimates that China’s natural gas storage capacity will reach 85 Bcm by 2030 (16% of demand), on par with the United States, which has around 130 Bcm of storage capacity, capable of holding around 15% of total US demand. China’s grain storage capacity is in line with that of the United States.
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