China struggles with conflicting interests in environmental, economic, social and geopolitical objectives. The trade-offs have varying consequences for the markets, resulting in strong price volatility for commodities.
For example, the price for aluminium, which is highly energy-intensive, is at the highest level in a decade in the country’s drive to save energy.
Furthermore, the price of iron ore has plummeted as steel production has been curtailed. On the other hand, coal prices have arisen precisely because of security measures taken in China’s mines and an increasing conflict with Australia. That country is, among other things, no longer allowed to ship coal to China.
Among other things, Beijing wants to limit emissions and reduce electricity consumption. But the interventions in that area should not be at the expense of economic growth, especially now that it is recovering from the corona crisis. The problem is that many of these policies restrict the supply of raw materials and drive up prices. This makes Beijing’s goal of curbing inflation a lot more complicated.
For example, half of China’s energy needs come from generating energy from coal. It is also the dirtiest fossil fuel and the largest contributor to the country’s emissions. Restricting the use of coal is the best way to meet commitments needed to limit global warming.
But Beijing doesn’t, or at least not yet. President Xi Jinping has said he expects consumption to increase through 2026, and state-owned enterprises and provincial governments are still approving new coal-fired power plants. But, at the same time, Chinese leaders have made it clear that the fuel should be all but gone by 2060.
There are also signs that China is serious. For example, a $19 billion factory for processing coal into chemicals was shut down in July. But the surge in domestic coal prices to record highs this year isn’t exactly an incentive for miners to produce less.
China is the world’s largest user of raw materials and is also a major producer of some of them. This creates a difficult split in some cases, especially now that the world goods market has become extremely unpredictable.