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Last Updated : Oct 31, 2020 02:15 PM IST | Source: Moneycontrol.com

Why China is on a commodity buying spree and how does it benefit India

China’s current appetite for various commodities has, in fact, benefitted many Indian products despite hostilities between both countries.

Subramani Mancombu

On October 27, the apex body of oilseed crushers Solvent Extractors Association of India (SEAI) raised an alarm over China scouring for castor seeds in India.

China is India’s largest buyer of castor oil but the SEAI concern was why it should enquire about raw materials in India, a principal supplier of castor oil and extractions. SEAI President Atul Chaturvedi urged the Commerce Ministry to scuttle attempts to export castor seed.

It matters much for India, which accounts for 90 percent of castor oil supplies in the global market.

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On October 28, Reuters reported that China accounted for nearly 30 percent of steel exports from India during the first half of the current fiscal.

JSW Steel, in a press release on results for the second quarter, said while Indian finished steel production and consumption dropped four percent and 10 percent, respectively, during the first half of the current fiscal, its exports increased 70 per cent to 5.54 million tonnes.

The release said that China’s GDP grew 4.9 percent in the third quarter of the current calendar year with “faster than anticipated recovery” in investment and manufacturing in the Communist nation.

Australian Website Stockhead said China has increased its buying of strategic commodities such as cobalt, iron ore and some foodstuff over the last couple of months.

The Xi Jinping government has bought 6.8 percent more coal and 11.8 percent higher iron ore so far this year, compared to the same period a year ago. Similarly, its purchase of soybean has increased by 17.7 percent year-on-year.

China is reported to have bought more commodities this month to strengthen its reserves ahead of the 2021-25 five-year plan period, according to Bloomberg.

“We are not sure if China is buying to build stocks or genuinely needs these commodities,” said N Radhakrishnan, a rubber dealer and former chief of Cochin Rubber Merchants Association.

“China’s buying spree is evoking suspicion. We are not sure if it needs genuinely or is preparing for something,” says B V Mehta, Executive Director of SEAI.

Currently, China’s relations with India are strained following the Galwan Valley clash between the Indian Army and its People’s Liberation Army at Ladakh. Geo-political observers are also concerned over China’s approach to the Taiwan issue.

Beijing intentions towards Taiwan are aggressive and the global community has raised concerns over the development.

Earlier this month, CNN reported that Chinese Premier Xi Jinping had directed his armed forces “to strengthen training of troops and to be ready for war”. Chinese wire agency Xinhua reported that Jinping asked his army to “maintain a state of high alert”.

India and Taiwan are not the only ones with whom China has problems. Beijing ties with Japan, the US, and regions around the South China sea have been strained.

However, there are two reasons why China is seen buying many commodities in the global market. One, it had a head start over all countries as far as the pandemic goes.

Even as other countries, especially India, were fighting to contain the pandemic, China had returned to normality by April, according to Rajiv Budhraja, Director-General, Automotive Tyre Manufacturers Association of India.

Two, prices of most commodities are ruling lower in view of slack demand due to the pandemic. Beijing is trying to take advantage of the situation, going for cheaper imports so that it can export finished products at a competitive price.

For example, China’s enquiry to import castor seeds from India could have been triggered by castor seeds ruling lower about 20 percent lower at Rs 44,350 a quintal compared with last year.

Even in the case of cotton, which Beijing is buying a good volume from India, prices are lower this year in view of huge carryover stocks. Also, Indian cotton is competitive at around 70 US cents per pound than from countries such as the US and Brazil at 73-74 US cents.

China’s current appetite for various commodities has, in fact, benefitted many Indian products despite the hostilities between both countries.

According to Commerce Ministry data, India’s exports to China increased 26 percent to $10.3 billion during the first half of the current fiscal from $8.4 billion during the same period a year ago.

Industrial commodities such as iron and steel, ores, and organic chemicals have been the key drivers behind the growth of India’s exports to China besides agricultural exports such as cotton, castor oil, groundnut oil and oilmeals.

Unconfirmed reports say that China has also been importing Indian rice through third party nations.

Besides, Chinese aggressive buying of commodities such as soybean, groundnut oil, and rubber in the global market have benefitted Indian growers.

Open market prices of fair average quality soybean are currently ruling at Rs 4,250 a quintal against the minimum support price of Rs 3,880.

Groundnut prices in Saurashtra, Gujarat, are ruling at Rs 5,700 a quintal compared to the MSP of 5,275.

Natural rubber prices have increased by about 20 percent this month to Rs 161 in Kottayam, the primary market for the commodity. Prices for natural rubber are currently at a four-year high.

If India has missed the Dragon party in anything, it is copper, which hit a multi-year high last week, topping $7,000 a tonne. This is because India has become a net importer of copper since the Vedanta Resources Plc Sterlite Copper Plant at Tuticorin in Tamil Nadu was ordered shut by the State government on May 28, 2018.

Analysts say that China is smelting record volumes of steel and aluminium now, which is more than demand. This could be Beijing’s strategy to build stocks.

If China’s buying-spree continues, India could continue to gain, directly and indirectly.

(The Author is a journalist based in Chennai, who writes on topics in commodities and agriculture.)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Oct 31, 2020 01:02 pm
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