China's commodity trade: The winds of change

Recent volatility in commodities caused by China's stock market declines is a timely reminder of the country's importance in global commodity markets. Away from the short-term 'noise', a major structural shift toward a less commodity-intensive growth model is underway, raising concerns that China's commodity imports are set to slow rapidly with serious adverse impacts on commodity-exporting countries.

However, research shows China's commodity imports are unlikely to be impacted uniformly by the country's domestic demand and supply dynamics. Diverse changes in demand, the availability of domestic resources, production efficiency and economic policies will all help determine domestic commodity production and, therefore, imports.

Growth in 'green energy' and a more consumption-oriented economy should actually boost import demand for some commodities. Coffee leads this group with import growth to 2020 likely to be more than 3x the rate of growth experienced over the past five years. Natural gas, corn, silver, gold and palladium are also likely to see rapidly rising import growth.

Manufacturing and infrastructure-driven commodities are likely to experience a rapid slowdown however. For example, copper import growth to 2020 is likely to be only around a third of the 3m tpy of import growth achieved in the past five years. Oil, iron ore and most of the base metals are also set for a rapid slowdown in import growth.

"Surprisingly, only a select few commodities will see imports fall in absolute terms and these are mostly agricultural as we think the big changes to Chinese dietary patterns are now over. Coal is the only other commodity covered in this report where we expect China's imports to fall in absolute terms to 2020", says Barclays.