Raw Material Commodities—Supply Risks and Security

The Russia-Ukraine conflict has dealt a major shock to the global commodity industry chain, which has worsened terms of trade and pushed up inflation, bringing supply chain security to the forefront of international attention. The commodity market is prone to a natural oligopoly, which underlies the supply security concerns among commodity importers. However, historically, countries—including those in Europe as well as the US, have not always been at a disadvantage for their reliance on commodity imports given their market dominance, which can be attributed to their technological and capital strength. Amid intensifying geopolitical conflicts and an accelerating green transition, we explore how a major resource-dependent country like China should build strength in the market to mitigate supply risks and ensure supply security. The mismatches between demand and supply in China are due to strong demand for resources, high dependence on imports, and high concentration of supply. Such factors constitute the major risks facing China’s commodity market, and are further exacerbated by cost disadvantages and slowing technological substitution. Supply–demand dynamics may tighten further amid the evolving landscape of the global commodity market and bring increased uncertainties to China. Resource nationalism refers to government intervention through control and dominance of natural resources within the country’s jurisdiction for political and economic purposes) has flared up and competition has escalated among commodity importers as the green transition has tightened supplies and inflated the prices of traditional energy and metals for renewable energy in international markets. Tensions in the international political environment may further fuel resource nationalism, and resource-dependent countries with dominant market power have intensified competition for resources, leading to fragmentation of the global raw material commodity market. China has entered the later stages of industrialization and is pushing forward high-quality development. The country’s share of global demand for traditional energy and metals has declined, while demand for new energy metals has increased substantially with low demand elasticity. We believe that a resurgence of resource nationalism will result in higher concentration of commodity supply, further amplifying risks. To cope with the challenges of raw material commodity supply, this report proposes measures at both the industry and national levels based on international experience and domestic reality. At the industry level, we think China could tap its domestic potential while expanding overseas channels, strengthening reserve capacity, and accelerating recycling and technology substitution. At the national level, we think China could continue to upgrade the security of its supply chains for strategic minerals, participate in global cooperation, and safeguard raw material supply chain resilience.