The sizzling Chinese economy is sucking in ever greater levels of raw materials, driving commodity prices to yet new highs on world markets.
Encouraged by a weakening of the US currency, in which many commodities are traded, investment funds disillusioned with low returns from equities have been quick to latch onto the rally.
As a result, the Commodities Research Bureau's index of 22 basic commodities from oil to butter is at the highest level since 1984.
PHOTO: REUTERS
The index has risen by more than 8 percent since the start of January, climbing above the 275-point mark last week, having been launched in its present form in 1971 at 100 points.
Many analysts expect China to be a major force on the world commodity markets in the years ahead.
The International Energy Agency (IEA) last week raised its estimate of growth in world oil demand this year by 220,000 barrels per day to 1.65 million barrels owing to strong demand in Asia and notably China.
The Paris-based IEA increased its forecast for Chinese growth in demand by 230,000 barrels per day to 580,000 barrels per day.
Base metals such as copper and aluminum have seen their prices surge to eight-year highs, driven by China's seemingly insatiable appetite for raw materials, a large part of which are used for exported goods.
"Chinese demand for the metals has been phenomenal over the past year or two," said Andrew Thomas at the Mining Journal.
"They have been sucking in metals from all over the world, which provided a real boost to physical demand for metals. Chinese demand shows no sign of slowing," he said.
So much so that the world now faces an aluminum shortage this year and next as Chinese demand outstrips limited supplies of the raw ingredient alumina, a recent industry survey found.
China, which consumed 18.7 percent of the world's aluminum and produced 19.7 percent last year, is rapidly expanding smelter capacity but will be forced to curb output because of limited alumina, the survey by Merrill Lynch said.
As a result, prices for aluminum -- used for beer and softdrink cans, home sidings, roofing and windows, car and plane bodies and overhead transmission lines -- would soar this year and next.
In Brussels last week the head of European steel group Arcelor, Guy Dolle, said a surge in Chinese consumption and production had created "a crazy situation" on the world steel market.
After decades of tight state control, China's economy has been gradually loosened over the past two decades to the extent that in most industries.
The decline in the value of the dollar has only fueled the commodities rally in recent weeks, making raw materials priced in the US unit more affordable to buyers using other currencies.
It has also prompted a flight to hard assets such as gold and base metals.
Gold, which is close to recent 15-year highs above US$400 per ounce, is not the only precious metal in demand.
Platinum has soared to levels not witnessed for 24 years above US$900 per ounce, while silver has scaled a six-year peak and even palladium, which has endured a brutal slump in recent years, has set a 12-month best.
China is also having an impact on the soft commodities, notably grains.
Chinese grain output has fallen about 63.5 million tonnes -- Canada's entire annual grain harvest -- since 1998, resulting in a shortage of some 43 million tonnes, a recent report said.
What stocks China has left will be depleted this year, according to the study by the Washington-based Earth Policy Institute, which campaigns for an environmentally sustainable economy.
"The handwriting on the wall is clear ... higher food prices could become a permanent part of the economic landscape," said Lester Brown, director of institute.
In related news, US companies are scrounging for scrap metal as surging demand from China is keeping US metal supplies tight, and dealers busy, the New York Times reported.
Exports of scrap steel have almost doubled since 2000 to 10.7 million tonnes last year, the newspaper said.
Last year, China became the first country ever to import more than US$1 billion of US scrap metal, the Times said, citing the American Metal Market industry paper.
China uses scrap metal in materials to build factories, skyscrapers and telecom systems.
The price of scrap has risen to more than US$300 a tonne from about US$156 a tonne at the end of last year, the Times said, citing the Emergency Steel Scrap Coalition.
Scrap metal is usually cheaper than new metal made from ore, the Times said.
US contractors told a Congressional hearing last week that the supply of scrap metal is so tight that sometimes they can't obtain materials at any price.
Copper and steel industry trade groups are drafting petitions to ask the government to limit scrap exports, the paper said. The US government has used that authority only once, in the mid-1970s, the paper said.
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