China is the largest consumer of commodities worldwide, and the second largest economy behind the United States.
That means that even small shifts in its economy can have large repercussions for commodity prices, and commodity-rich nations such as Australia.
Nothing quite demonstrates China’s commodity clout than the chart below from Macquarie Bank.
It shows the total share of global commodity consumption in 2017 from nations other than China.
China’s demand is massive compared to the rest of the world, especially for base and bulk commodities, accounting for around a half — sometimes more — of total consumption last year.
“A question investors often ask us is whether commodities could endure a Chinese slowdown and outperform on strong demand from developed economies this year,” Macquarie says.
“Generally, base metals — particularly copper, zinc and lead — and also steel, appear more exposed to the rest of the world compared to steel raw materials, which come at the bottom.”
With iron ore, coking coal and metallurgical coal among its largest exports, that means that if the Chinese economy were to falter, it would likely have a large impact on Australia.
For LNG, of increasing significance given Australia looks set to become the largest exporter globally in the years ahead, Macquarie says that while its far less exposed to the performance of the Chinese economy right now, that will likely change in the future.
“Natural gas stands out with China accounting for only 6% of global demand, though this is a market where Chinese demand will increasingly matter at the margin,” it says.
“China’s influence on LNG markets has become apparent in recent months after a government clampdown on coal-fueled industrial boilers this winter sent Chinese LNG imports and prices through the roof.”