China-Africa trade gets a boost from critical minerals needed for EV battery production

Trade between China and Africa defied economic headwinds in the first quarter of 2024, with two-way trade growing by 5.9 per cent year on year to US$70.86 billion, according to the latest customs data.

This was despite a property crisis in China which affected copper demand, with a downturn in copper prices towards the end of 2023.

Experts have attributed the rise in trade to higher commodity prices during the period, as well as incentives introduced by Beijing to grow trade with Africa, in particular, allowing more agricultural products into China tariff-free. China has also been buying more gold from Africa, adding to the increase, they noted.

The figures from China’s General Administration of Customs showed imports from Africa grew 8 per cent year on year to US$29.42 billion in the first quarter. This was boosted by a rise in imports of critical minerals, in particular metals used for electric vehicle (EV) battery production.

Meanwhile, China’s exports to Africa increased 4.4 per cent, rising to US$41.4 billion.

It is a trade surplus for Beijing that is borne from the fact that China buys mostly raw materials from the continent – such as oil, copper, iron ore and battery metals including cobalt and lithium – while it largely exports finished industrial products.

It follows, then, that it was chiefly resource-rich nations that made up China’s largest trading partners in Africa for the quarter, such as South Africa, Angola, the Democratic Republic of the Congo (DRC), Nigeria, Egypt, Liberia, Algeria, Guinea and Morocco.

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Lithium exports from Zimbabwe to China have soared after Chinese companies pumped billions into building processing plants. Photo: AP

Angola, for example, ships most of its oil to China. The DRC, meanwhile, is the world’s largest producer of cobalt, essential in the manufacture of EV batteries and smartphones. It exports the vast majority of this mineral to China.

Chinese exports to South Africa did record a drop in the period, falling by 15.9 per cent to US$4.94 billion. At the same time, South Africa’s exports to China rose 7.9 per cent to US$9.35 billion.

The country, which is China’s most important African trading partner, mostly sells metals to China, including gold, diamonds, platinum, manganese ore, iron ore, chromium ore and zinc ore, while it buys broadcasting equipment, computers, electric batteries, motor vehicles and electrical transformers.

Another country that has emerged as a key source of battery metals for China is South Africa’s northern neighbour, Zimbabwe, where Chinese companies have pumped in billions of dollars to build lithium processing plants.

In the first two months of 2024, Zimbabwe’s trade with China jumped 77.6 per cent year on year, driven by an increase in exports of Zimbabwean products, including lithium and tobacco.

According to the customs data, Zimbabwe’s exports to China rose 255.5 per cent in the period to US$320.54 million. However, it is likely this figure is so high because in the same period in 2023, most of the new lithium processing plants had not started operations.

Gold prices have soared and so this might be part of Africa helping China change its foreign exchange reserves mix.
Charlie Robertson, FIM Partners

Charlie Robertson, head of macro strategy at FIM Partners, an asset management firm, said the soaring price of gold could go some way to explaining the rise in China-Africa trade. He said China had been buying gold since the West froze Russia’s foreign exchange (forex) reserves after Moscow’s invasion of Ukraine.

“Gold prices have soared and so this might be part of Africa helping China change its foreign exchange reserves mix. Oil and copper have risen recently too,” Robertson said.

“Commodities and particularly gold are probably responsible for rising African exports to China.”

Meanwhile, Robertson said, more realistic exchange rates in Egypt, Nigeria and Kenya might be helping to rebuild appetite for Chinese exports to Africa.

Lauren Johnston, associate professor at the University of Sydney’s China Studies Centre, said Africa enjoyed a trade surplus with China during the commodities boom. But now, as commodities prices and currency movements had become more volatile, so too had the trade numbers.

Johnston said while lower commodities prices might not be good news for resource-rich countries, they were useful for countries such as Kenya and Ethiopia that were net commodity importers.

“Cheaper imports would help fuel their growth and, in turn, drive more imports from China,” she said.

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Beijing has helped Africa with infrastructure works to assist with export logistics, such as the Standard Gauge Railway (SGR) line in Kenya. Photo: Bloomberg

But recently, the price of two essential commodities – oil and copper – has been rising, mostly driven by increased demand and geopolitical risks, including Russia’s invasion of Ukraine and the ongoing war in the Middle East. Gold, too, has been gaining in value.

“China has been ramping up gold imports from Africa as the Chinese middle class moves to preserve their wealth amid real estate woes, global geopolitics and tensions around the role of the dollar, and the stock market slump,” Johnston said.

Ovigwe Eguegu, policy analyst at Beijing-based consultancy Development Reimagined, said it was government support measures rolled out in the second half of 2023 to boost business, consumer confidence and private sector investment that saw the Chinese economy get off to a relatively good start this year.

“We may now be seeing the effects of those measures,” Eguegu said.

However, he said commodities prices as well as global security and economic dynamics had played a role in the latest China-Africa trade figures.

For instance, Eguegu said in the first quarter of 2023, the average crude oil spot price was around US$76.47 per barrel. But in March this year, the ICE [Intercontinental Exchange] Brent Crude futures reached a six-month high of US$90 per barrel.

“Not only have oil prices increased significantly in 2024, they are projected to maintain the current price level or go even higher due to an extension of Opec+ [Organisation of Petroleum Exporting Countries plus other oil-producing nations] output cuts through June, not to forget escalating tensions in the Middle East and Ukrainian attacks on Russia’s oil infrastructure,” Eguegu said.

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He pointed out that those factors would not just keep prices favourable to suppliers, but could shift more Chinese oil importers towards African suppliers like Angola.

Eguegu also said copper prices faced fluctuations in 2023, starting strong due to easing Covid-19 restrictions in China but then being hit with challenges later in the year due to a prolonged property crisis and weak local demand.

But, he said copper prices were expected to increase again this year due to supply disruptions at large mines such as Central America’s Cobre Panama as well as increasing demand from sectors in the energy transition.

“While the Chinese construction and real estate sector is undergoing a correction, the manufacture of EV and other green energy products are good,” Eguegu said. “Thus, there is likely to be an increase in the value and volume of copper exports from Zambia, DRC and other major exporters to China.”

Similarly, he said that from the Chinese export side, the competitiveness of Chinese finished goods, like EVs, electronics and solar panels, remains strong, which means market dynamics also favour African demand for Chinese products for the foreseeable future.

“Overall, since much of Africa’s exports to China are commodities, and with the projections of the commodity markets, it is within reason to expect good China-Africa trade figures,” Eguegu said.

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