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Reuters Column: China’s low growth target takes some wind from commodities’ sails

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LAUNCESTON, Australia, March 6 (Reuters) by Clyde Russell – China’s decision to set a modest 5% economic growth target for 2023 may knock some optimism out of commodity markets, which had been anticipating a surge in demand from the world’s largest buyer of natural resources.

The 5% target was set on Sunday as China kicked off its annual session of the National People’s Congress, with outgoing Premier Li Keqiang stressing the need to bolster economic stability and boost consumption.

What this likely means in practical terms is Beijing will continue to stimulate critical parts of the economy, most notably by boosting construction and infrastructure, while also trying to lift consumer confidence and spending.


The 5% growth ambition is clearly an improvement on the tepid 3% expansion of gross domestic product achieved in 2022, but it’s also hardly likely to fuel expectations of a surge in demand for commodities.

If the target is achieved, what will it likely mean for commodity imports in 2023?

It’s worth starting by looking at what happened last year.

Imports of most major commodities were soft in 2022, with China seeing declines in arrivals of crude oil (-0.9%), natural gas (-2.5%), iron ore (-1.5%) and coal (-9.2%).

Copper was the exception, with imports of the industrial metal rising 6.2% in 2022 from the prior year, but this was partly driven by a higher domestic price in China, which attracted flows from the rest of the world.

An acceleration of economic growth to 5% implies that more commodities will be required, and probably to the extent that China’s imports will return to positive territory.

Already there are some signs of a pick-up in commodity demand, especially for iron ore, the key raw material for steel.

Iron ore imports are estimated by Refinitiv at 91.81 million tonnes in February, down from 100.55 million in January, but this works out to be an increase in imports per day, with February coming in at 3.28 million tonnes a day, up from January’s 3.24 million, because February is a shorter month.

The Refinitiv estimate for the first two months of this year also is an acceleration from the official customs numbers of 90.86 million tonnes of imports in December.

This indicates that steel mills have been buying more iron ore in expectation of higher demand as the construction season gets into full swing as winter comes to an end.


Crude oil imports are also improving as China’s residents resume travelling after the end of restrictions that were part of the now abandoned zero-COVID policy, which crimped demand for much of last year.

China is estimated by Refinitiv to have imported 11.85 million barrels per day (bpd) in February, up from 10.98 million bpd in January.

If the official numbers are in line with Refinitiv’s estimate, February will be the strongest month for crude oil imports since July 2020.

The question is whether demand for crude oil will continue at the high levels of the first two months of 2023, or whether it will level off as the initial demand for travel after the end of restrictions is sated.

Much will also depend on whether Beijing keeps encouraging refiners to export fuels such as diesel and gasoline, with flows of these products having increased in recent months as China sought to boost economic activity and to allow its refiners to capture some of the high profit margins in global fuel markets.

Overall, the current backdrop is positive for China’s commodity demand, with the end of COVID-19 restrictions boosting fuel consumption and stimulus spending encouraging increasing steel output.

A robust lift in the main manufacturing activity indexes for February also boosted sentiment, although this should be tempered by signs that the rest of the world is starting to struggle amid persistent high inflation.

But by limiting China’s growth ambition to just 5% for 2023, Beijing may just be putting a cap on expectations of how much commodity demand can rebound this year.

The opinions expressed here are those of the author, a columnist for Reuters.

Source - Reuters Column: China’s low growth target takes some wind from commodities’ sails

(c) Thompson Reuters