China's annual legislative congress serves as a pivotal moment for setting economic policies that have far-reaching effects on global commodities markets. As the world's largest consumer of raw materials, China's decisions on industrial overcapacity, energy security, fiscal stimulus, and trade policies will significantly shape the outlook for steel, aluminium, copper, coal, oil, and agricultural commodities. The backdrop of industrial challenges, a sluggish property sector, and geopolitical tensions further complicate the economic landscape. This essay explores the key factors at play, providing unique perspectives on their potential consequences for global markets.
China's industrial overcapacity is a recurring issue, particularly in the steel, copper, and solar energy sectors. With its economy still recovering from past downturns and struggling to revive domestic demand, excess production has led to a surge in exports. In 2024, Chinese steel exports hit a nine-year high, indicating that surplus production is being offloaded onto global markets. This pattern creates tension with trade partners, who view it as unfair competition.
From a global perspective, China's overproduction contributes to price volatility, exerting downward pressure on commodity prices. Countries with significant steel and aluminium industries, like the U.S. and the European Union, may respond with anti-dumping measures or tariffs, further exacerbating trade frictions. If Beijing implements stricter production curbs, it could also create supply shortages, leading to price spikes in global steel and base metal markets.
China's fiscal stimulus approach will be another crucial determinant of commodity demand. While past stimulus efforts heavily targeted infrastructure and real estate, Beijing now focuses on consumption-driven growth. This shift could mean more support for consumer goods and advanced manufacturing rather than traditional construction materials like cement and steel.
However, there remains potential for targeted investments in digital and energy infrastructure. If the government prioritises grid expansion, semiconductor production, and electric vehicle development, copper and aluminium demand could be boosted. Conversely, commodity prices may face downward pressure if spending remains conservative, especially in sectors dependent on large-scale construction activity.
China's energy security policies are another major factor shaping the outlook for commodities. While the country has successfully increased its fossil fuel output, including achieving its 2025 oil production target ahead of schedule, its progress on emissions reduction remains underwhelming. The government aims to cut carbon emissions per unit of GDP by 18% from 2020-2025, yet it is unlikely to meet this target without drastic policy changes.
China continues to rely on coal to stabilise its power supply, which inevitably conflicts with its renewable energy ambitions. The rapid expansion of wind and solar has been a bright spot, but market-based pricing reforms set to take effect in mid-2025 could slow new installations, leading to greater volatility in coal prices, particularly if demand spikes due to shortfalls in renewable generation.
From a global commodities standpoint, China's energy policies will significantly influence the coal, oil, and natural gas markets. If policymakers introduce stricter emissions regulations, demand for cleaner fuels such as LNG could rise. Conversely, a more gradual transition could sustain demand for coal, reinforcing its dominance in the energy mix for longer than anticipated.
The ongoing trade tensions between China and the U.S. present a major source of uncertainty. The Biden administration has continued tariffs on Chinese goods, and a potential second Trump presidency could escalate these measures. In response, China has diversified its supply chains, notably reducing its reliance on U.S. agricultural products by increasing imports from Brazil.
Trade disputes have already restricted imports of U.S. beef, pork, and dairy, while China has launched trade probes into key agricultural imports. If tensions worsen, commodity markets could see further disruptions. Agricultural exporters in the U.S. may lose market share, while alternative suppliers like Brazil and Argentina stand to benefit. Meanwhile, China's shift away from U.S. soybeans will create long-term changes in global agricultural trade flows.
Similarly, restrictions on Chinese technology exports or increased scrutiny of rare earth metals could impact supply chains worldwide for renewable energy, batteries, and semiconductor industries. If China retaliates by limiting exports of critical minerals, global manufacturers may face higher input costs, disrupting production in high-tech and green energy sectors.
As global trade becomes increasingly complex, companies must navigate the risks associated with geopolitical tensions, shifting trade policies, and evolving economic alliances. OceanMerge provides strategic advisory services to help businesses assess these risks and develop resilient trade strategies. By leveraging in-depth market intelligence, regulatory insights, and scenario modelling, OceanMerge assists firms in diversifying supply chains, optimising cross-border transactions, and mitigating tariff impacts. Whether through strategic acquisitions, market entry planning, or trade finance solutions, OceanMerge ensures that businesses can adapt to the growing uncertainties in international commerce while maximising growth opportunities.
The policy decisions emerging from China's congress will have varied effects across different commodities:
China's congress will be a defining moment for global commodities markets, as decisions on industrial policy, fiscal stimulus, energy security, and trade will shape market dynamics for years to come. The conflicting priorities of economic growth, emissions reductions, and geopolitical manoeuvring make predicting the outcomes complex. However, market participants can better anticipate risks and opportunities by closely monitoring China's policy direction.
The key takeaway for businesses is adaptability. Companies that proactively adjust their strategies in response to China's policy shifts—whether by diversifying supply chains, investing in alternative markets, or leveraging strategic trade advisory services—will be best positioned to weather economic uncertainty. As the global economy remains deeply interconnected with China's trajectory, informed decision-making and proactive risk management will be crucial for businesses navigating the evolving commodities landscape.
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