China's economic slowdown is poised to reshape the global commodities market, warns Igor Isaev, head of analytics at Mind Money. With the nation being a major driver of global demand for raw materials, the cascading effects of its downturn are expected to increase price volatility and disrupt long-standing trade dynamics.

Key Challenges for Commodities in 2025

Isaev identifies several factors contributing to rising instability in commodity markets:

  • The incoming Trump administration and its potential impact on trade policies.

  • Ongoing conflicts in the Middle East.

  • Natural disasters affecting coastal regions of Mexico and the United States.

However, Isaev highlights China’s economic deterioration as the most underestimated threat to the commodity markets.

China's Economic Decline: The Underlying Causes

Once the engine of global economic growth, China’s economy now faces significant headwinds. Isaev points to several factors driving this slowdown:

  1. Excess Production Capacity: Overproduction has led to inefficiencies across industries.

  2. Housing Market Downturn: A prolonged slump in real estate is affecting consumer wealth.

  3. Weak Consumer Spending: Domestic demand remains muted, with consumer prices rising only 0.4% year-over-year in September and core inflation stagnating at 0.1%.

Other structural issues, such as the loss of China’s cheap labor advantage, rising youth unemployment, an aging population, and declining demand from Europe, compound the country’s challenges.

A Risk of Deflation and Global Impact

Without significant stimulus measures, Isaev warns that China could face deflation similar to Japan’s “Lost Decade” in the 1990s. Projections suggest China’s economic growth could slow to 3.5–4.5% annually over the next five years.

China remains the world’s largest importer of key resources like oil, making its economic trajectory critical for global commodities markets. For instance, while China’s oil import volume remains stable at 11 million barrels per day, declining demand has pressured oil prices.

Strategic Adjustments in Energy

China’s energy sector has seen notable modernization efforts, leading to a 5–15% reduction in energy costs per unit of GDP from 2022 to 2024. Factors contributing to this include:

  • Discounted resource imports from economically weaker nations.

  • Advances in domestic energy efficiency and infrastructure.

These measures may ease the economic slowdown, but their effects are limited given the broader structural challenges.

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Opportunities for Global Investors

Isaev suggests that investors look beyond China for emerging opportunities:

  • US Markets: Promising sectors include energy, artificial intelligence, robotics, and big data.

  • India and Mexico: These nations are rapidly scaling their manufacturing capabilities, making them viable alternatives to China for global consumer markets.

  • Alternative Natural Resource Suppliers: Diversifying supply chains to reduce dependency on Chinese exports is becoming increasingly critical.

Additionally, many investors are pivoting toward safer assets, such as gold and US bonds, as foreign direct investment in China turns negative for the first time since 1998.

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