Dividends and China’s commodity imports saved 2020, but this year may be different

Within every market is the biggest customer and when they buy, volumes go up. When volumes go up everyone on the outside looking in seems to think things are going well. For the insiders in that industry, they worry the biggest buyer may or may not continue to be the biggest buyer. In the case of commodities, the biggest buyer in the marketplace is China.

In an article by Clyde Russell of Reuters, in 2020, China bought record volumes of crude oil, copper, iron ore, and coal or the biggest mining companies depend on China.

In the oil market, crude imports rose 7.3% in 2020 to 10.85 million barrels a day about 12% of global demand. In December, crude imports decreased to 9.06 million barrels a day which is 17.9% decrease or a decrease of 15% from 2019. Did China need the oil or were they stock piling or putting the oil in storage? China does have refining capacity and will refine some oil to ship elsewhere in the Asia.

Copper imports in December were 512,332 tons down 8.7% in November and it was the 3rd consecutive monthly decline. Last January prices reached a high of $8,234 a ton and have decreased to $8,009 a ton. China accounts for half of global copper demand.

Iron ore is another major commodity where China dominates, accounting for 2/3’s of the seaborne market. In 2020 imports rose 9.5% to 1.17 billion tons. Iron ore is used in the manufacture of steel and steed demand was strong as China spent money on infrastructure and construction projects to renew growth (expect the US to do something similar under the new President). In December imports were 96.75 million tons down 1.4% from November.

Coal imports leaped 235% to 39.08 million tons from November’s 11.67 million tons. The total coal imports for the year was 303.99 million tons up 1.5% from 2019.

Linking to dividend paying stocks, in our economy most of us have little to do with basic commodities because we work with information, but the economy runs on commodities. In countries around the world the demand for commodities by China means the mining, railroads and ports were active which means jobs. Politicians like that which means they will have a love hate relationship with China. In your investments, there is company or country which dominates, as long as you are good with it, then there is no reason to seek alternatives, just be aware of it.

There are more questions than answers, till the next time – to raising questions.

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