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Chinese demand profile and incremental commodity demand

28 May

I wanted to point out a few things about China from Michael Pettis’ early May newsletter. Below are some really eye-popping statistics about China’s demand profile. (Many thanks to Jeremy Grantham, to whom Pettis credits as the original source for the below statistics.)


Share of global GDP

China’s GDP

9.4%

China’s GDP (PPP basis)

13.6%

“The next table lists China’s share of total global demand for a selected list of non-food commodities:

Non-food commodities

Share of global demand

Cement

53.2%

Iron Ore      

47.7%

Coal

46.9%

Steel

45.4%

Lead

44.6%

Zinc

41.3%

Aluminum

40.6%

Copper

38.9%

Nickel

36.3%

Oil

10.3%

“Finally, the same table for food commodities:

Food commodities

Share of global demand

Pigs

46.4%

Eggs

37.2%

Rice

28.1%

Soybeans

24.6%

Wheat

16.6%

Chickens

15.6%

Cattle

9.5%

“What is most noteworthy about these tables, of course, is the disproportion between China’s share of global GDP and China’s commodity consumption.”

Pettis, whose commentary is always original and borderline brilliant, goes on to comment about Chinese investment growth and how re-balancing of the economy in that country (from investment-led demand to consumption-led demand), could have significant effects on non-food commodities (second chart):

“Take iron, for example. If Chinese demand declines by 10%, this would represent a reduction in global demand of nearly 5%. I am not an expert in the commodity markets, but I guess that supply and demand considerations are fairly finely balanced, and a 5% reduction in demand should have significant price repercussions – especially if a material part of Chinese demand represents stockpiling and this stockpiling is reversed.”

Some food (or non-food) for thought.

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