China Helped Raise, Then Slow, The Global Commodity Boom

A burgeoning global economic recovery helped the rally. But China, which accounts for up to 60% of global resource consumption, has stepped back in recent weeks from its investment-focused playbook, as policymakers refocus on containing bad debts and securing bad debt. reorganization of the economy on a consumer-led basis. Amid new concerns that some metals for battery manufacturing may be oversupplied globally, the benchmark metals fell in March from records a month earlier: nickel by 18%, cobalt 13% and copper 9%.

“You will only call this a supercycle if you forget the corrections,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at investment bank Natixis..

“The fundamental signs are a cyclical recovery, but we are also talking about a world that needs less raw materials.”

Chinese buying spurred the rally in many metals markets in the 12 months leading up to the end of February, doubling some prices from pandemic lows. Imports of copper last year increased 34% year-over-year to a record 6.7 million metric tonnes. Imports of cobalt increased by 45%. The vast shipments rocked other parts of the world, with home appliance makers in India, for example, scrambling to find copper. Electric vehicle producers outside of China have expressed concern about the battery supply. Japan maximized its power plants because it lacked natural gas imports.

“We were experiencing cost increases of 15% to 20% compared to November,” said Kamal Nandi, business manager of Indian manufacturer Godrej Appliances, which depends on imported copper to make air conditioners. “Most of the mines had not projected this type of demand and had not kept production at peak.”

Imports have generated profits in the global mining sector. BHP Billiton Ltd., the world’s largest miner, posted a record half-year dividend last month. LG Chem Ltd.

, battery supplier to electric vehicle manufacturer Tesla Inc.,

announced that its 2020 profit has almost tripled year on year. China manufactures half of the world’s electric vehicles.

“There is a difference between last year’s cycle and the supercycle,” said Tomas Gutierrez, analyst for metal consultancy Kallanish Commodities. “What’s coming up is particularly good for the battery material, and the first to benefit will likely be electric vehicles.”

But unlike bulk resources like iron ore and crude oil, China is much less dependent on global markets for the building blocks of battery technology. China dominates the supply and processing of metals for mobile electrification. It is investing heavily in finding alternatives to the conductive material it lacks, for example by using aluminum – China has a lot of it – in place of copper, on which it depends heavily on imports. Beijing is pushing for carbon neutrality by 2060 and has amassed resources abroad, especially in cobalt, lithium and nickel – the essential trio for batteries.

“For Beijing, energy independence and decarbonization are inseparable: by winning the clean energy race, China can rid itself of the chains of its dependence on others and dominate the resources and technologies the world needs to decarbonize”, consulting firm Wood Mackenzie said in March. report.

Copper is one of the most widely supplied metals in the world. But even so, China’s copper imports were down in December from mid-year highs, down 9% that month from November. Imports of lithium cobalt oxide, the bluish-gray crystal used in rechargeable battery electrodes, fell 14% for the year compared to 2019. Imports of nickel ore in 2020 fell 30% d year after year.

Manufacturers who depend on copper don’t expect long-term shortages. “I think this shortage will not last more than two quarters,” said Mr. Nandi de Godrej. “A lot of research and material substitutions are underway in these fields.”

In early March, nickel prices, which had soared for months compared to projected battery demand in China, fell 9% in a single day, hours after Chinese metal producer Tsingshan Holding Group announced plans to supply large volumes of nickel matte, a battery ingredient, to Chinese battery manufacturers at low cost – cushioning industry expectations of shortages of battery-grade nickel.

Also weighing on prices: U.S. miners rush to develop new lithium supplies, in part to reduce their reliance on China, which analysts say controls about half of global lithium production and manufactures three quarters of its lithium-ion batteries.

The world’s last supercycle peaked around 2011, as China’s economy slowed due to skyrocketing corporate debt, infrastructure over-construction and industrial overcapacity, which weighed on markets. of raw materials for years. Beijing now faces similar structural problems, including an overheating housing market, and is preparing measures that could temper the rampant expansion – and the consumption of raw materials.

“Can China continue to demand the same amount of commodities? For me, the answer is no, because its structural growth is declining, ”said Ms. Garcia-Herrero. “This does not bode well for the supercycle.”

Write to Chuin-Wei Yap at [email protected]