COLUMN-China’s 2014 commodity demand subject to policy influences – by Clyde Russell (Reuters U.K. – December 19, 2013)

Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, Dec 19 (Reuters) – China’s commodity demand has been lumpy this year, with weakness in crude oil and copper being offset by robust gains in iron ore and coal, and this pattern is likely to continue into next year.

However, the relative winners may change. Much will depend on the track of economic reforms and how much success the world’s largest commodity user has in rotating its economy to be more consumer-led.

China’s official target for gross domestic product growth was 7.5 percent for 2013, and while the target for next year has not yet been announced, it’s likely to be maintained or perhaps lowered slightly. But more important than the overall target for GDP is how the growth is achieved.

The pattern for the past two years has been that China’s economy has seen momentum losses in the key industrial sector, followed by a re-acceleration in growth as policies are implemented to boost infrastructure and construction investment.

This is clearly a pattern the authorities would like to move away from, but to achieve a more consumer-driven economy without sacrificing growth rates is proving tough to achieve.

Nonetheless, the most likely policy path for 2014 is to continue efforts to move away from investment-led growth, albeit at a modest pace.

This means the recent trend of slowing demand growth for commodities is likely to continue.

However, lower growth rates still mean significant volume gains given the higher starting points after years of strong demand.

Crude oil may experience a turnaround in demand growth in 2014, based on the view that manufacturing and exports will remain solid and consumer spending on new vehicles will be robust.

China may have overtaken the United States as the largest net importer of crude oil and refined fuels this year, but the overall growth in demand was below market expectations.

With only December’s figures to come, implied oil demand for the first 11 months of 2013 was 9.76 million barrels per day (bpd), a gain of only 2.1 percent over the same period in 2012.

Even strong December oil demand won’t be enough to meet the International Energy Agency’s forecast for demand of 10.19 million bpd for 2013, nor the 10.28 million bpd predicted by top state oil company CNPC at the start of the year.

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