Over the past two decades, the prices of key commodities, including crude oil, copper and crops, have tended to follow the ups and downs of Chinese growth. So, what is China’s economy telling us about these commodities today?
It’s a complicated story for two reasons. First, China’s economy is running both hot and cold, depending on how you measure it. Second, as technology changes, the relationship between different aspects of China’s economy and various commodities is changing too.
Let’s begin with what’s hot in China: exports and industrial production are on fire. Chinese exports are growing quickly, fueling growth in industrial output, especially green technologies like EVs, solar panels and batteries.
But not everything in China is hot. The construction sector is in a deep slump and home prices have fallen by around 15% over the past five years. This has put Chinese consumers in a cautious mood, with retail spending growing around 1% per year.
The one area of domestic consumption that remains strong is EV sales, which now account for 68% of all car sales in China. This is boosting China’s demand for copper and helps to explain why the price of copper, which used to track Chinese growth closely, has surged since 2022 even as China’s growth has slowed.
Meanwhile, China’s shift toward EVs has allowed the country to cut 3 million barrels per day off of its crude oil imports since March, limiting the upside to crude oil prices despite war-related supply disruptions. Likewise, EVs also don’t require biofuels produced from corn or soybeans which may explain, in part, why crop prices have not kept pace with the rise in diesel prices and other input costs.
The old China-commodity playbook assumed that when China grew, commodities rose across the board. That link is changing and the energy transition is one reason why.
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