China moves to secure war-shattered commodities in Ukraine

(Bloomberg) – Senior Chinese government officials have issued an order to prioritize the security of energy and raw material supplies, prompted by concerns over disruptions resulting from the war between Ukraine and Russia.

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Government agencies, including the country’s main economic planning body – the National Development and Reform Commission – have been ordered to push public buyers to scour markets for materials such as oil and gas , iron ore, barley and corn to fill potential gaps. caused by the conflict, according to people familiar with the matter. Officials made no mention of pricing, the people said, indicating the cost of imports is not a concern at this time.

Securing supplies is a priority for the country, with officials worried about the impact that soaring global commodity prices will have on China’s economy, the people said, requesting anonymity as they are not authorized to speak to the media. Beijing is stepping up its focus on energy and food security after already feeling the strain of the pandemic, supply chain pressures and geopolitics like the diplomatic row with Australia. Officials did not provide specific guidance on how to secure supplies, leaving it up to agencies to map, the people said.

The NDRC did not respond to a fax requesting comment. Oil prices in London rose 8.6% on Wednesday, while aluminum extended its advance to 3.4%. Chicago corn futures jumped 3% to their highest level since 2012, and wheat jumped 7.6%.

Soaring commodity prices due to the war are likely to complicate measures to support Chinese growth. Officials are expected to unveil new measures to support the economy as the National People’s Congress begins this weekend, and the Industry Ministry has warned of indiscriminate production curbs disrupting raw material supplies of the industrial sector.

China is heading into a season of peak demand for many commodities, and the risk of supply disruptions due to Russia’s invasion of Ukraine will exacerbate rising prices for everything from metals to fertilizer.

Buyers are already looking beyond Russia and Ukraine for supplies as disruptions take hold. With the Belarusian potash sector under US and EU sanctions, China is now paying 139% more than 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 avoiding purchases due to mounting sanctions on Moscow. Russia is China’s second largest overseas coal source after Indonesia.

Russia, which rivals Saudi Arabia as China’s top oil seller, has strengthened its trade ties with Beijing over the past decade. China has doubled its purchases of energy products from its neighbor over the past five years, to nearly $60 billion.

During a meeting between Xi Jinping and Vladimir Putin last month, the two leaders signed a series of agreements to boost Russian supplies 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 maize last year, which represents 29% of its total maize imports. It also shipped about 18 million tons of iron ore from Ukraine, about 1.6% of overseas purchases.

Russia accounted for almost 18% of China’s refined nickel imports at the end of last year, and accounted for about 12% of aluminum and 26% of its palladium shipments. China also got almost 30% of its sunflower oil from Russia, while Ukraine provided the rest.

Food security is a key priority for Beijing, especially as its imports of corn, soybeans and wheat have reached record levels in recent years, increasing China’s vulnerability to trade tensions and supply shocks. Efforts to preserve the country’s food supplies range from increasing local production to diversifying imports, developing its seed industry and reducing food waste.

(Updates with price movements in the fourth paragraph)

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