In just four decades, the Chinese has managed to become the largest buyer of numerous commodities in the world. Its appetite for various commodities has increased since China’s economic reforms back in 1978. This has led China to become the second-largest economy in the world.
According to a report by a commodities consultancy, Wood McKenzie, China’s influence on global commodity markets is unparalleled. It imports more than 60% of its domestic demand for gas, oil, and iron ore. Its imports for coal, oil, and liquified natural gas (LNG) make up about one-fifth of the seaborne trade globally. In terms of bulk commodities, China is now the world’s largest consumer.
Due to the massive growth in manufacturing and construction sectors and the needs of 1.4 billion people in the country, the demand for raw materials such as steel and copper in China has increased.
For the past year, there have been rising fears over the prices of commodities amid the ongoing trade war with the United States and the economic slowdown around the world. However, it seems that while the trade tensions between two of the biggest economies in the world are continuing and the Chinese economy is growing moderately, the country will still be a major consumer of numerous commodities like copper, oil, steel, and soybeans.
In China, the demand for copper has grown due to the booming property sector. This demand has made up for half of the copper demand worldwide. This is a far cry from the under 10% demand the country had back in the 1980s.
With the rise of industrialization, the demand for steel in China has increased in the past 40 years. Steel is widely used in different sectors including construction.
As for oil, the demand may not be as much as that of steel and copper, China is still one of the top energy consumers in the world. In 2018, it accounted for 18% of the global crude oil consumption.
In the last 40 years, the consumption of soybeans in China has increased more than 12 times. It accounts for 60% of U.S. soybean exports. With the current trade war between the United States and China, this has affected the prices and demands for soybeans.
Despite their ability to buy different kinds of commodities in large numbers, the Chinese believe that they still don’t have a say in setting prices. This has prompted the setting up of offshore operations by Chinese commodity exchanges and brokerages so that clients outside of the country can be served better.
The very first offshore exchange established by China was launched in Singapore in 2018. The Asia Pacific Exchange focuses on new commodities futures contracts in palm olein and fuel oil.
According to the CEO of Asia Pacific Exchange, Eugene Zhu, the goal is to make the Chinese price setters for various commodities and not just price-takers. The bourse would be able to give the Chinese the chance to discover better pricing of the different commodities.
Other bourses in China like the Dalian Commodity Exchange and the Shanghai Futures Exchange have also established overseas operations that are focused on marketing commodity products including crude oil futures.