World's Top Commodity Engine Roars to Record With Xi at Helm

(Bloomberg) -- China continues to gobble up the world’s commodities, setting new records for consumption of everything from crude oil to soybeans.

In a year of flux marked by industrial capacity cuts, environmental curbs and financial deleveraging, demand for raw materials has continued to grow in the world’s biggest consumer, helping drive a second annual gain in global commodity returns.

The Bloomberg Commodity Index was up 0.2 percent at 9:55 a.m. London time, climbing for a fourth day. The gauge of returns from raw materials rose 0.8 percent last year after advancing 11.4 percent in 2016.

As President Xi Jinping consolidates power behind an economy that may have posted its first full-year acceleration since 2010, there are few signs of the Chinese commodity juggernaut slowing as it rolls into 2018.

“China’s economic expansion has been beating expectations since the second half of last year, boosting demand for all kinds of commodities,” Guo Chaohui, an analyst with Beijing-based China International Capital Corp., said by phone. “We are expecting continued strength in economic growth in 2018 which will keep up the nation’s import appetite.”

Oil Coronation

The crown of the world’s biggest oil importer now sits firmly atop China after the nation’s shipments surpassed the U.S. on an annual basis for the first time ever. What’s more, it’s also one of the largest buyers of American crude.

Inbound shipments from across the globe -- Russia to Saudi Arabia and Venezuela -- jumped about 10 percent to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday.

The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75 percent higher than for 2017.

Mr. Blue Sky

The world’s second-biggest economy is also realizing that the key to winning its war on smog may lie overseas. Record amounts of less-polluting grades of iron ore -- typically not available within China -- are being pulled in to feed the nation’s mammoth steel industry, with imports rising 5 percent to 1.07 billion metric tons in 2017.

China’s increasing emphasis on cleaner air has spurred a flight to quality in the global iron ore market, boosting the premium users will pay for better material and underpinning a rebound in benchmark prices from the low-$50s in June. Mills’ preference for higher grades will probably persist, the Australian government said this week.

Steel demand in the Asian country -- which produces half the world’s supply and buys about two thirds of global seaborne ore shipments -- also looks stable as mills are keeping more output at home. Exports slumped 30.5 percent to 75.43 million tons in 2017. That drop is unlikely to reverse easily.

Gas Guzzler

Purchases of less-polluting ore is only one tactic in China’s war against pollution. Another is curbing coal use and encouraging the use of cleaner natural gas instead. Imports of the fuel via both sea and pipeline surged almost 27 percent to 68.57 million tons in 2017.

The country’s appetite for natural gas spawned a supply shortfall this winter, signaling that there’s still space for purchases to grow. Beijing-based China International Capital Corp. and JLC Network Technology see consumption expanding 10 percent this year while Sanford C. Bernstein predicts demand may rise as much as 15 percent.

Still, don’t count coal out yet. Overseas shipments of the dirtier fuel rose 6.1 percent to 270.9 million tons in 2017, as the government’s drive to cut capacity at smaller, less efficient mines and safety inspections limited domestic production.

Food for Farms

And while China is trying to clean up its air, it’s also seeking more food for its hogs at its expanding large-scale farms. The explosion in economic growth over the past couple of decades has made its population richer, with better living standards spurring meat consumption.

As big farms have increased, so has demand for soybeans that’ll be crushed to make feed for the pigs. China’s inbound shipments of the oilseed jumped almost 14 percent to a record 95.54 million tons in 2017. The nation’s soy imports are forecast to grow to an unprecedented 97 million tons in the 12 months ending September 2018, according to the U.S. Department of Agriculture. The country will account for 65 percent of global trade, the data show.

Glittering Concentrate

As the growing economy spurs construction of buildings and factories, China’s going to need more copper for the electrical wires and pipes that wind through its infrastructure. Domestic mines are often small and can’t keep up with the pace at which capacity for refining the metal is expanding, boosting demand for overseas purchases of concentrate.

China’s copper ore and concentrate imports rose 2.3 percent to a record 17.35 million tons in 2017. Demand growth for the overseas raw material will be sustained this year, according to Jia Zheng, a trader with Shanghai Minghong Investment Management Co.

Meanwhile, as more concentrate is converted to finished material within China, the nation’s unwrought copper and copper product imports have fallen, with shipments dropping 5.2 percent from a year ago.

--With assistance from Winnie Zhu Jasmine Ng Martin Ritchie Dan Murtaugh Sarah Chen Jing Yang and Niu Shuping

To contact the reporter on this story: Pratish Narayanan in Singapore at pnarayanan9@bloomberg.net.

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net, Pratish Narayanan

©2018 Bloomberg L.P.