China’s top government officials have issued orders to prioritize energy and commodities supply security, sparked by concerns over disruptions stemming from the Ukraine-Russia war, says an article published in Financial Post.
Ensuring supplies is a high priority
Government agencies, including the country’s top economic planning body — the National Development & Reform Commission — have been ordered to push state-owned buyers to scour markets for materials including oil and gas, iron ore, barley, and corn to fill any potential gaps brought on by the conflict, according to people familiar with the matter.
The officials made no mention of prices, the people said, indicating the cost of imports isn’t a focus right now.
Ensuring supplies is of high priority for the country, with officials worried about the impact surging global costs of commodities will have on the Chinese economy, the people said, requesting anonymity because they’re unauthorized to speak to the media.
Emphasis on energy and food security
Beijing is ramping up its emphasis on energy and food security after already feeling the squeeze from the pandemic, supply chain pressures, and geopolitics such as the diplomatic spat with Australia. The officials did not provide specific guidance on how to ensure supplies, leaving it to the agencies to map out, the people said.
A surge in commodities prices
The NDRC didn’t reply to a fax seeking comment. Oil prices in London rose as much as 8.6% on Wednesday, while aluminum extended an advance to 3.4%. Corn futures in Chicago jumped 3% to the highest since 2012, and wheat surged 7.6%.
The surge in commodities prices due to the war is likely to complicate measures to sustain China’s growth. Officials are expected to unveil further steps to support the economy as the National People’s Congress begins this weekend, and the industry ministry has warned against indiscriminate production curbs that disrupt the supply of raw materials to the industrial sector.
China is heading into peak demand season for many commodities, and the risk of supply disruptions because of Russia’s invasion of Ukraine will exacerbate rising prices of everything from metals to fertilizers.
Beyond Russia and Ukraine
Buyers are already looking beyond Russia and Ukraine for supplies as disruptions set in. With Belarus’ potash sector under U.S. and European sanctions, China is now paying 139% more than what it did a year ago to secure imports from Canada and Israel.
In energy, Chinese power plants and steelmakers are seeking alternatives to Russian coal after some domestic banks suggested they avoid purchases due to the mounting sanctions being imposed on Moscow. Russia is China’s second-biggest source of overseas coal after Indonesia.
Russia, which vies with Saudi Arabia as China’s biggest seller of oil, has strengthened trade ties with Beijing over the past decade. China has doubled purchases of energy products from its neighbor over the last five years, to nearly $60 billion.
Food security, critical priority
During a meeting between Xi Jinping and Vladimir Putin last month, the two leaders signed a series of deals to boost the Russian supply of gas and oil, as well as wheat. China is also a big buyer of Ukrainian corn and barley. It bought more than 8.2 million tons of Ukrainian corn last year, accounting for 29% of its total corn imports. It also shipped about 18 million tons of iron ore from Ukraine or about 1.6% of overseas purchases.
Russia accounted for nearly 18% of China’s imports of refined nickel as of the end of last year and made up about 12% of aluminum and 26% of its palladium shipments. China also got almost 30% of its sunflower oil from Russia, while Ukraine supplied the rest.
Food security has been a critical priority for Beijing, especially as its imports of corn, soybeans, and wheat have jumped to record levels in recent years, increasing China’s vulnerability to trade tensions and supply shocks.
Efforts to safeguard the nation’s food supplies range from boosting local production to diversifying imports, developing its seed industry, and reducing food waste.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe
Source: Financial Post
