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Commodities Rebound Expected As Demand Diversifies Outside China
By Isaac Ndegwa
Even as global fears that China is slowing keep on growing, Asia still has a lot to be proud of because there seems to be a big rebound in the works in the emerging economies of the South East Asia. The combined GDP of the Asian-5 nations (Indonesia, Malaysia, Philippines, Vietnam and Thailand) is expected to rise to $3 trillion by 2020. The current boom in that region has been fueling a commodities rebound. That is a very positive development considering there is yet another economy that can sustain commodity demand whenever China is showing some stalling expansion. Infrastructure projects drive new demand for crude and commodities
The increase in commodities and crude demand is almost always as a result of the herculean infrastructure projects carried out in those countries. Spread out momentum helps to increase and maintain the commodity demand, in the meantime strengthening oil-dependent currencies like the Canadian dollar. The loonie had for example suffered a decline for more than two weeks but the oil price rebounds currently taking place due to fresh oil demand from Asia has been able to support the currency a bit. Thailand has a string of infrastructure projects worth $50 billion going on and Vietnam has already started a $10 billion railway modernization project. These all need great commodity supply, including steel, gold, crude and iron imports.
Surge in steel demand
The latest data from the region shows that commodities surged at their highest rate during the first half of 2016, ever since the 2008 financial lull crept in. Steel has been one of the commodities that has benefited from high demand out of the infrastructure construction and expansion. China has managed to secure large orders of steel from these emerging economies. The demand in the 5 countries increases and that grows the changes of China’s economy growing even further. Rising Iron ore imports have also shown good signs of increasing infrastructure expansion.
Morgan Stanley expert Mr Lim suggests that steel is an excellent proxy because it will usually reflect the dynamics underlying other commodities. When there is low demand for steel, people can expect the same for aluminum, copper and bauxite. Steel demand within the Asian 5 is projected at 6% pessimistic in 2016 while even more can be expected in 2017 when more infrastructure projects get into their operational phase. The 2017 projection o 74.6 million tons already dwarfs those of the whole of Africa or the Middle East.
The diversification of the demand for commodities including copper to countries outside China gives more hopes to mining, utilities and manufacturing sector. Diversification is also seen in terms of industry, as newer upcoming industries give more demand backup when the traditional consumers experience seasonal downturns in demand.
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By Isaac Ndegwa
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