- Manufacturers' profit margins helped by lower input costs
- Consumers gain from lower heating oil, gasoline prices
The pain from the rout in global commodity prices is sweeping through nations from Brazil to South Africa. The biggest beneficiary? Arguably it’s China, the nation often blamed for driving prices lower due to its slowing economic growth.
China’s annual savings from the commodities rout amount to $460 billion, according to calculations by Kenneth Courtis, former Asia vice chairman at Goldman Sachs Group Inc. About $320 billion of that is from cheaper oil, with the rest from other energy, metals, coal and agricultural commodities.
Benefits are rippling through the economy, pushing down or steadying prices of everything from home heating and petrol prices to the cost of raw materials at factories. That’s also boosting China’s efforts to recalibrate its economic growth model away from a reliance on heavy industries and investment toward consumption and services.
"It’s shown up in low consumer-price inflation and more stuff that households have been able to buy," said Louis Kuijs, the head of Asia economics at Oxford Economics Ltd. in Hong Kong and a former World Bank economist in Beijing. "Manufacturing companies would have had even worse profit developments if it had not been for those low commodity prices."
China saved $188 billion in import costs last year on a basket of 10 commodities ranging from oil to soybeans and natural gas, the Ministry of Commerce said in a statement this month. "That significantly cut the costs of domestic companies and improved efficiency," the ministry’s spokesman said.
By helping damp inflation, the commodities price slump also has given China’s policy makers more room to ease monetary policy to support economic growth, which slowed to a 25-year low in 2015. A lower import bill also helped the nation’s trade surplus surge to $594.5 billion last year, helping mitigate capital outflows that have pressured the yuan.
China is capitalizing on the lower prices, importing a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. The country had record imports of iron ore, soybeans and copper concentrate last year.
"China is the great winner from the crash of commodity prices," said Courtis, now chairman of Starfort Holdings. "A significant portion of that windfall gain is being transferred to the domestic population."
— With assistance by Kevin Hamlin