China Commodity Demand Not Peaking, Says IMF

By Tom Wright

A man works beside a cargo ship in Qingdao port. Agence France-Presse/Getty Images China’s economic deceleration has spooked commodity markets. But the International Monetary Fund, in its latest global economic report, said China’s demand for commodities is far from peaking. The IMF noted China’s rebalancing away from an investment-led economic model does not mean its consumption of commodities will tail off. Looking at growth trajectories in China, South Korea and Japan, the fund found that China’s per capita gross domestic product would need to double before that started to happen. (GDP per capita stood at $6,600 in 2013, the IMF estimates.) Instead, the IMF points out the composition of Chinese demand for commodities is likely to shift. As Beijing moves to shut down unprofitable steel factories, growth in demand for iron ore and copper should moderate. China is still importing iron ore at record levels but these imports are expected to grow at a slower pace from now on. Concerns over China demand partly explain why iron prices have fallen 12% since the start of 2014. (New supply is another factor.) By comparison, the fund said, Chinese demand for high-grade metals like aluminum used in consumer durables like cars and dishwashers is likely to prove more resilient in years ahead. “At incomes of $15,000 per capita and higher, consumption of copper and iron ore is predicted to fall more rapidly than consumption of aluminum,” the report said. The fund said other commodities will do well as incomes in China rise: high-protein foods and zinc. Losers could include rice, copper and eventually coal.

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