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China's consumption of commodities has had a huge influence on the market… Here's the next commodity poised to benefit

by , 17 September 2014

Over the last two decades, China has seen growth on a phenomenal scale.

This growth helped fuel massive demand for many commodities.

But as demand for heavy commodities starts to wane, which commodity is next in line to benefit from this Asian giant?

Let's take a closer look…

China’s use of commodities

No-one could have quite predicted the growth that’s taken place in China over the last 20 years.

The country has quite literally sucked up vast amounts of commodities as it builds itself as an industrial powerhouse.

With these commodities, China has built infrastructure and cities. And it’s become a huge exporter of goods to the rest of the world.

Changes like this in a developing economy like China is the first stages of industry. This includes:

  • The building of factories;
  • A huge rise in car ownership;
  • The installation of electricity;
  • The building of infrastructure;
  • Upgrading of homes; and
  • Buying of appliances.

As a country like China’s economy develops, a larger proportion of gross domestic product (GDP) starts to go into high value, smaller goods.

And this means that its demand for commodities (raw materials) starts to drop, Bengt Saelensminde in The Right Side explains. This includes goods like mobile phones, laptops, tablets, etc.

As the demand for physical infrastructure starts to slow down and plateau, the weight shifts to these smaller high value products.

With demand for these goods comes the demand for another type of commodity, like lithium.

Why lithium looks set to soar

The rechargeable batteries in your mobile phone, laptop and tablet contain lithium.

And as development into greener forms of energy expands, the use of rechargeable batteries grow. This includes lawnmowers, golf carts and cars.

Demand for these types of battery-powered goods looks set to soar in China along with its growing middle class.

This places lithium in the perfect place for its price to soar as demand takes off.

To gain exposure to the potential rise of lithium, you can look to lithium explorers and producers. When the price of lithium takes off, these companies should benefit.

So there you have it, the next commodity poised to benefit from China’s rising demand.

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China's consumption of commodities has had a huge influence on the market… Here's the next commodity poised to benefit
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