Quickened Chinese urbanisation should boost commodities

The $6.4trn boost to China’s urbanisation, announced at the Third Plenum, will boost the eastern giant’s already “voracious” appetite for raw materials, ETF Securities says.

The Chinese administration’s focus on reducing overcapacity should also lead to higher prices for metals, especially aluminium.

It has pledged to halve the original 20-year timeframe for urbanising 400 million citizens through a massive investment drive.

That will push up government infrastructure spending, which was 9 per cent higher in 2013 than the previous year.

ETF Securities research associate director Simona Gambarini says China’s slower growth rate, expected to be between 7 and 8 per cent, is more sustainable and the country’s commodity consumption should remain strong.

“China’s recent robust economic and commodity import numbers highlight its voracious appetite for raw materials, which will continue to be a key driver of commodity price increases,” Gambarini says.

Chinese producers have been buying up commodities opportunistically to replenish stockpiles at low prices, she says.

Imports of bauxite are up 98 per cent on last year, while gold is up 183 per cent.

Natural gas is up 38 per cent, copper 34 per cent, platinum 24 per cent, iron ore 21 per cent and oil 16 per cent. Meanwhile, tin is down 47 per cent and lead 31 per cent.

Gambarini sats: “With the Government now focused on reducing overcapacity and improving efficiency, we expect over-production of certain commodities like aluminium to eventually abate, in turn lifting prices.” 

The Third Plenum held last month reaffirmed the government’s commitment to create a more market-led economy.