Is China Piling Up Commodities for War or for Trump?
Is China Piling Up Commodities for War or for Trump?
The Commodity Report #166
Is China Piling Up Commodities for War or for Trump?
These days, it is no secret anymore that China is massively pilling up its commodities and raw materials reserves. Some say this is because of the uncertainty of the US elections and following trade restrictions - perhaps it’s because the country lines up for war with Taiwan.
The government asked its state oil companies to add "nearly 60 million barrels" of crude oil to its reserves and the state-owned agricultural stockpiler Sinograin to increase its grain imports. The US, for example, predicts that China's wheat and corn stocks will soon be 52% and 68% of the world's, respectively, according to the latest USDA projections.
Of course, China is normally a major importer of raw materials and food products. However, given the country's economic woes, this dynamic does not reflect growing consumption.
Exactly how much is being stored is difficult to ascertain. The Chinese state tightly guards information on its emergency stockpiling, making it hard to gauge or track its inventory levels. Most data we have been therefore estimated by government agencies or private companies.
By mid-2023, China's strategic petroleum reserves (SPR) and commercial reserves were estimated to be around 1 billion barrels. This includes both crude oil and refined petroleum products. The total global oil reserves are estimated to be around 1.7 trillion barrels. The United States, for instance, has an SPR of approximately 600 million barrels.
Another example is the completely out-of-sample high stocks of copper. Even more surprising: inventories are growing at exactly the time of year when they should be shrinking fast, according to general seasonality.
But why is China now frantically stockpiling such an array of commodities? Is it a defensive measure as the government sees further economic weaknesses across the horizon and wants to wean itself off Western supplies - or one hinting at future aggression? Everyone probably needs to answer that question for themself.
What we know for sure is that there is evidence that China is taking further measures to distance itself from the US. While buying huge quantities of gold earlier this year, China has also been selling down its holdings of US government debt to protect it against dollar sanctions if it comes into a conflict with the West. This move could be in reaction to sanctions placed on Russia after it invaded Ukraine, in which Western penalties quickly wiped out roughly $350 billion of Moscow’s foreign currency and was viewed as a highly controversial move by the US government as they basically weaponized the world reserve currency further.
But as we covered in this post earlier, this year Chinese citizens bought tonnes of gold to escape the Chinese government and debt bubble.
Just a Statistic
I provided this statistic from Nautilus Research without any further remarks. Statistically, the upside for upside in the price of agricultural commodities seems to be limited - so the numbers and the history, that besides that, do not necessarily reflect the future.
The same can be said for the correlation between copper and yields…
In Other News…
A new government and president in Venezuela could lead to fewer sanctions, especially from the US in the mid-term. The outcome will probably decide about the future of Venezuela’s 303 billion barrels of oil reserves.
This week, look out for the following:
ISM Services PMI on Monday
otherwise a quiet week on the news front
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Till next Monday, Lukas
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