Chinese demand for a wide range of commodities has been surprisingly strong this year despite worsening economic data, raising questions over how long the demand recovery can last.
For the first three months of the year, oil demand grew an annual 7.7 percent, its biggest gain in over two years while March iron ore imports soared 18.5 percent on month, snapping a two-month run of declines. Imports of refined copper metal rose to a four-month high last month, building on an 11.4 percent gain in copper consumption in February. And in the precious metals sector, March platinum imports jumped 26 percent on year, hitting their highest since December 2013.
The spike in demand seems at odds with recent growth indicators. Manufacturing activity in March remain in contraction territory while April's figure fell to a one-year low, according to HSBC's preliminary purchasing manager's index (PMI) survey. Meanwhile, industrial production logged its worst performance in March since the global financial crisis and first-quarter gross domestic product hit a six-year low.
According to Barclays, government spending on infrastructure is a key factor fueling demand for commodities, referring to the 300 infrastructure projects valued at $1 trillion slated for this year.
"While fixed asset investment growth in March slowed to 10.3 percent y/y, infrastructure investment rose 24.5 percent," the bank said in a report on Wednesday, adding that energy and metal intensive sectors like transportation, water conservation and public utilities, saw the biggest inflows.
The new Silk Road initiative is also attracting investment into transport infrastructure, supporting demand for related commodities, Arjen van Dijkhuizen, senior economist at ABN-AMRO, said last week Where things will go from here aren't clear, analysts say.
While China's deliberate shift away from an investment-led economic model could dampen its demand for resources, aggressive monetary easing by policymakers could provide a buffer.