Commodity super-expert Gianclaudio Torlizzi calls it a war economy strategy. The crisis in Taiwan, with the state visit by House Speaker Nancy Pelosi branded a provocation by Beijing, triggers another short circuit with Washington. A relationship that has already been put to the test by mutual tariffs and bans on the use of telecommunications equipment. This time, however, something unusual happens. A trend that has been going on for almost a year. Which indicates a profound change in strategy by Xi Jinping. Because it initiates (and consolidates) a process of decoupling the economies between East and West of the world, aggravated by the war in Ukraine.
As Moscow slides into China’s sphere of influence, there’s no mistaking that Beijing is preparing to disrupt the global commodity imbalance, buying and stockpiling metals and grain like never before in recent history. Torlizzi writes that Beijing’s ongoing process of replenishing raw materials, along with its adherence to a strict Zero Covid, is a clear sign of a warlike stance by the Chinese regime. To date, China holds 93% of the world’s copper reserves, 74% of the aluminum reserves, 68% of the corn reserves and 51% of the wheat reserves. On the other hand, inventories in Europe and the USA are still very low. In recent weeks, the Celestial Empire’s copper imports have grown again, despite a significant slowdown in the economy in recent months due to government crackdowns on the real estate sector.
Torlizzi adds a series of reflections that open up different scenarios. None of it idyllic. It is certainly reasonable to expect a series of reprisals, including commercial ones, from Beijing. Actions presumably coordinated with Moscow. A first sign of this could be Beijing’s refusal to go along with the G7 proposal for a price cap on crude oil. Should the Chinese government decide to reject the G7 proposal, the measure’s oil price control power would be severely diluted, also considering that New Delhi would do the same after Beijing’s refusal. And without China and India, which are among the main buyers of Russian oil these months, the profitability of the price cap would be very low, as it would push up crude oil prices in the West, increase the rebate paid by Chinese and Indian buyers, and favor flow from Russian oil to Asia.
Centralized European purchases of rare metals should be considered. And build trade alliances with South America. Only Bolivia has deposits of barite, bismuth, bentonite, boric acid, cement, copper, gold, gypsum, rock salt and tantalum. But American strategy seems to be hiding for the moment. Beijing had already started stocking up on corn last October, driving up the price of wheat futures traded on the Chicago Stock Exchange. If there is a country in the world that starts buying commodities relentlessly, the price is bound to rise according to the most elementary dynamics between supply and demand. If China, which has economies of scale, investment opportunities and sufficient domestic demand (over 1.3 billion people), does this, then this market will be an earthquake like never before. The largest producer in the world, as luck would have it, Ukraine, which probably did not know its supplier and could not imagine what would happen just a few months later.