Barclays Foresees Strong Chinese Imports Of Precious Metals Over Next Several Years
Beijing (Sept 2) Growth in China’s imports of precious metals is likely to be stronger than for most commodities over the next half decade, said Barclays in a report published Wednesday.
With the world’s largest population and as the country develops its infrastructure, China is one of the world’s largest consumers of commodities.
The country’s shift toward “green energy” and a consumption-oriented economy should boost demand for certain commodities. Coffee may be the one that benefits most, with Barclays projecting that coffee import growth to 2020 may increase at more than three times the rate of growth over the past five years.
“Natural gas, corn, silver, gold and palladium are also likely to see rapidly rising import growth,” the bank said.
Meanwhile, the rate of future growth is likely to slow for commodities like base metals that are used for manufacturing and infrastructure, Barclays said.Flag
The bank said it looks for China’s gold demand to rise by around 7.5% annually from 2014 to 2020, lifted by rising real incomes and associated jewelry consumption, along with investment demand and continued accumulation of gold as a reserve by the People’s Bank of China.
“By contrast, we see constraints on China’s gold production and, as a result, we expect a growing gap between domestic supply and demand, thus the need for growing imports,” Barclays said.
The bank noted that it looks for China’s gold output to continue rising but at a more modest 4% annual increase over the next five years.
“At this forecast rate, China would produce more than 570 tonnes of gold by 2020; however, this would still leave import demand rising from 511 tonnes in 2014 to 912 tonnes in 2020, an increase of almost 80%,” Barclays said. “The main constraining factor we see in China’s gold production is its domestic reserves.”
China’s government has estimated domestic mine reserves at between 8,000 and 9,000 tonnes, while the U.S. Geological Survey puts this at only 1,900, Barclays pointed out. “In either case, China is producing at a high rate against its mine reserves, with annual production 70% higher than Australia, the country with the largest reserves.”
Meanwhile, Barclays projected a steady increase in silver import demand averaging 7.3% annually over the next few years, similar to the average growth rate of 7.8% from between 2008-14.
Silver is mined in China mainly as a by-product of lead and zinc operations. Since growth in the latter are expected to slow to between 3% and 2.8% per annum, respectively, Barclays said growth in China’s silver output is set to decline to 3% from 2014-2020. Meanwhile, silver demand is seen rising by 4.6% annually, the bank said, although this would be slower than 6% per annum from 2008 to 2014.
Barclays projected palladium and platinum demand will grow by 5.2% and 2.9% per year, respectively, for between 2014 and 2020. The country produces little of these metals, with the overwhelming majority of global coming from Russia and South Africa.
“The demand for palladium is driven mainly by car-sales demand. We expect China’s off-take for palladium to continue to grow, as we forecast further growth in car sales and the government is strengthening policy on pollution, spurring higher demand for auto catalysts,” Barclays said.
Platinum demand is driven both by jewelry and auto demand.
“Although Chinese consumers, especially the younger generation, continue to favor platinum jewelry, we expect the growth to slow down,” Barclays said. “China already accounts for more than two-thirds of platinum jewelry globally and further consumer penetration might be limited.”