China's future commodity consumption will mainly depend on the path of its income growth. China's population, while it's huge in terms of level, the growth is slowing. This implies that China's increased commodity consumption will be more due to a function of income growth and less as a result of population growth in the long term. For many industrial commodities, China accounts for a major part of global demand. Interestingly, there has been a much higher share for global demand of metals than their share of global GDP.
It is concerned about the sustainability of the earlier out-sized commodity consumption amidst slowing Chinese economy. Nevertheless, the degree of the difference in the ratio between the share of GDP and share of consumption in China, and other emerging markets is definitely remarkable. There are some factors that might be leading to this difference. One factor is the sheer size of China, where infrastructure is needed to cover areas more than other nations such as Taiwan, South Korea and Japan. Technological progress taken place in recent year is another factor.
Stock building in the country might be another reason for the increased demand. However, there are no tangible data to find out to what extant this influence has contributed to its share of consumption. The use of certain metals, mainly copper, might also be a factor for higher demand - as collateral to obtain financing. The recent lowering of interest rates in China has assisted in winding down this practice; however, it has also helped to push prices down.
Investment mainly drives consumption of industrial metals. Investment growth is projected to be about half the rate seen in the past ten years. This will have certain impact on industrial commodity consumption, which indicates that consumption intensity of these commodities fall at certain point.
"In China, we expect the result to be no different, with consumption patterns following a similar path to that of comparable countries. That said, given the size of China's economy, and the fact that investment is still expected to grow, metals consumption is likely to continue to rise", says TD Economics.
