Chinese demand for commodities set to rise again: Analysts

Chinese demand for commodities set to rise again: Analysts

Benjamin Morgan, Agence France-Presse/Shanghai

After showing some signs of easing, global demand for raw
materials is set to rise again with electricity and real estate
projects expected to keep the wheels of China's surging economy
humming, analysts say.

"Chinese demand has slowed down this year compared to last
year, but it should rebound strongly next year," said Steve
Thomas from London-based research group LMC International.

"China remains the driver for world growth for commodities and
is expected to be for some time yet," he added. "It would affect
a whole range of commodities including oil, copper, platinum and
palladium, cotton, rubber, cereals or even wool."

The recent sag in demand for commodities is in part due to
attempts by Chinese authorities to brake the frenetic pace of
growth that in the 18 months to the end of June saw growth at
more than 9.5 percent.

But already imports of aluminum and copper have sprung back in
recent months, while activity in the construction industry, a
major user of steel and aluminum, has also risen sharply.

"We don't really see much of a downturn, with industrial
production in China at around 16 percent," said Bob Way, head of
metals research at AME Mineral Economics in Sydney.

"Things are pretty much now as good at it got and there is no
real slowdown in China," he said.

Similarly, a report by UBS chief Asia economist Jonathan
Anderson last month said that Chinese construction activity had
ticked higher, gaining almost 30 percent year-on-year in July,
according to the latest figures.

Such arguments were bolstered by long-term economic outlooks
that suggest the Chinese economy will only see a marginal
slowdown.

An OECD report on China last month said "economic growth has
averaged 9.5 percent over the past two decades and seems likely
to continue at that pace for some time," even as it warned more
economic and social reforms were imperative.

On Thursday, official data showed the Chinese economy
continued to forge ahead, with gross domestic product (GDP) up
9.4 percent in the third quarter.

For four years the voracious demand for raw products from
Chinese factories has mercilessly pushed commodity prices higher,
smashing the global balance in trade.

"While subject to cyclical reversals, we expect many commodity
prices to stay higher for longer with demand growth above
historical levels," Morgan Stanley analyst Robert Ottenstein
said.

Take oil, for instance.

China became the world's second-largest oil guzzler after the
United States in 2002 and last year it consumed 314 million
tonnes, of which it imported 122.7 million tons, taking eight
percent of world consumption.

While the rise in demand has dropped off since early 2004 due
to record oil prices, and domestic price controls restricting
supply, it is likely to again turn higher.

"We wouldn't look for 12 more months of weak Chinese oil
imports," said UBS's Anderson.

"In our view, mainland petroleum purchases should recover
nicely going forward."

Certain industries such as steel, of which China is the
world's largest producer, have seen a sharp fall due to
overproduction, but much of the overcapacity could be used at
home.

"Industry and electricity construction are the main drivers in
keeping the prices up," said AME Mineral's Way.