CRU: One Belt One Road, But Two Commodity Outlooks

LONDON, August 4, 2017 /PRNewswire/ --

China's One Belt One Road (OBOR) initiative is described as the single biggest initiative since the opening up of China to foreign investment. In its narrowest sense, it can be described as a trade and investment initiative with more than 60 countries, notably in infrastructure, but it is also designed to expand China's global influence. But how will it impact commodities?  

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In this CRU Insight, John Johnson, Country Manager, CRU China, introduces a simple framework for looking at the importance of this initiative for the major commodities followed by CRU. The conclusion of this Insight is that OBOR will have an impact on commodity markets, but that there are two distinct groups of commodities for which the influence of this policy varies: "surplus commodities" and "deficit commodities". Up until now, attention has focused on demand and the impact of China exporting surplus commodities, such as steel. However, China also has an enormous deficit in many commodities, which has an important impact on supply and is an equally important driver behind the OBOR initiative.

China's role in production of commodities differs markedly
China accounts for about 10% of world land mass, but its geological endowment is such that it produces different proportions of various commodities. For example, at one extreme, China accounts for 63% of global coking coal production, and at the other extreme, for as little as 5% of global crude oil production, as shown in the chart below.

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SOURCE CRU