China Relishes Commodity Feast as Unrelenting Glut Routs Prices

The weakest commodity market in 25 years is proving to be a boon for China as it grapples with the slowest economic growth since 1990.

The world’s biggest user of energy, metals and grains bought a record amount of crude, iron ore, soybeans and copper concentrate last year, when a measure of returns from 22 commodities posted the biggest decline since the 2008 global financial crisis. While China took advantage of the drop in prices to boost purchases of raw materials, it also sent some manufactured products such as steel abroad and exacerbated a market oversupply.

While a persistent global glut of everything from oil to copper and soybeans has dragged down the Bloomberg Commodity Index further this week to its lowest since 1991, investors hoping for a recovery will be counting on China to continue its record purchases. Authorities in the world’s second-largest economy are trying to stimulate growth via a slew of measures including trying to stabilize its currency and stalling the outflow of capital.

“It’s undeniable that China increased buying in a number of commodities last year because of low prices,” Hong Sung Ki, a senior commodities analyst at Samsung Futures Inc. in Seoul, said by phone. “But the question the market is asking is whether that demand is here to stay this year as it was mostly driven by attractive prices while the economy is slowing.”

The Bloomberg Commodity Index rose 0.1 percent to 74.4971 by 3:43 p.m. Singapore time. The gauge slid as much as 1.5 percent on Tuesday to the lowest level since January 1991.

Emergency Stockpiles
China increased crude imports last year by 8.8 percent to a record 334 million metric tons, or about 6.7 million barrels a day, data from the Beijing-based General Administration of Customs showed on Wednesday. As prices have plunged to near $30 a barrel, the nation has eased rules to allow private refiners, known as teapots, to buy supplies from overseas and boosted shipments to fill emergency stockpiles.

Inbound cargoes of soybeans totaled 81.69 million tons in 2015, up 14.4 percent from a year earlier, the data show. Imports of iron ore were 2.2 percent higher at 952.72 million tons.

Meanwhile, the nation sent 112.4 million tons of steel abroad in 2015, an amount big enough to feed demand in Germany and Japan for a year and leave almost 9 million tons to spare. Ballooning Chinese exports have hurt producers elsewhere and triggered trade action worldwide.

“China is enjoying cheap prices of some commodities,” Kang Yoo Jin, a Seoul-based commodities analyst at NH Investment & Securities Co., said by phone. “It will need to keep buying raw materials such as soybeans, while it also splurges on feedstock like iron ore for its mills.”


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