The reignited optimism over improved Chinese demand in the global commodities market following Beijing’s recent wave of stimulus measures will likely be short-lived, say analysts.
“Continuation of China’s property sector downturn could further weigh on the Chinese economy,” said Australia’s Office of the Chief Economist (AOCE).
“Subdued demand in China, amid its struggling property sector, will continue to exert downward pressure on the metals market and a sustained long-term upward trend in industrial metal prices is unlikely to materialise until we see a turning point in the Mainland Chinese construction sector,” said research agency BMI, a unit of Fitch Solutions.
Lacking details
“We think that the recent stimulus measures still lack detail, and we struggle to find an additional demand growth driver for industrial metals in the measures announced so far,” said ING Think, the economic and financial analysis wing of Dutch multinational banking services firm ING.
On September 24, the People’s Bank of China (PBoC) announced its most aggressive monetary easing measures since the global financial crisis. The package incorporated initiatives to reinvigorate the housing market, including a reduction of downpayment requirements.
On September 26, a Politburo meeting in Beijing unveiled a raft of fiscal stimulus measures, resolving to “stop the decline of the property market”, ‘limit new housing supply and adjust housing purchase restrictions, although details remain scarce.
Iron ore, copper major gainers
The package resulted in the metals complex surging on hopes of demand increasing in China, the largest consumer of metals globally.
Iron ore surged to a five-month high, while copper topped $10,000 a tonne. The bullish momentum continued last week but has cooled off this week, particularly after Chinese markets reopened after the Golden Week holiday.
“...the anticipated briefing by China’s top economic planner, the National Development and Reform Commission, mostly disappointed, failing to deliver new pledges to boost government spending,” said ING Think.
BMI said there are additional mid to long-term downside risks to the overall industrial metals complex stemming from Chinese policymakers’ efforts to rebalance the world’s second-largest economy away from construction.
Dollar impact
Beijing is attempting to slow housebuilding in a move to limit house-building supply to reduce the stock of unsold homes and support prices. “This is expected to weigh heavily on metals prices, given that the Chinese construction sector constitutes a large portion of industrial metals’ demand,” it said.
ING Think said any sustained pick up in metals prices will depend on the strength and the speed of the rollout of the measures. “We will look out for any potential investment into new infrastructure projects and energy transition sectors,” it said.
BMI said while the Chinese stimulus may fuel support for industrial metals in the short term, a weaker dollar will place a floor under metals in the coming months, given their inverse relationship to the greenback.
ING Think said it has seen plenty of property support measures this year but so far they have failed to have a meaningful impact on metals demand.
More room for easing policies
The Dutch bank’s think-tank said its economist believes that there is still room for further easing (of policies) in the months ahead, and “if we see a large fiscal policy push as well, momentum could recover heading into the fourth quarter”.
The Chinese property market prices must stabilise if not recover. “Second, we need to see excess housing inventories come down towards historical norms. Until then, the drag on growth will continue,” said ING Think.
“We believe the continued weakness in the sector remains the main downside risk to our outlook for industrial metals. We believe that until the market sees signs of a sustainable recovery and economic growth in China, we will struggle to see a long-term move higher for industrial metals,” it said.
AOCE said China’s growth is expected to moderate out to 2026 due to structural and demographic factors, including “population falls and slowing urbanisation”.
No impact on agri
On the other hand, BMI said it does not expect the stimulus to provide either sustainable support to agricultural prices within China or long-lived momentum to international grain prices, with other factors set to continue shaping sentiment.
“In terms of international grain markets, the impact or otherwise of the Chinese stimulus will be determined first and foremost in view of its impact on domestic import demand,” it said.
The research agency said the Chinese stimulus measures announced so far remain “quite vague”. China’s grain harvests will start to reach local markets in greater volumes in Q4 2024 and could well exert further downward pressure on domestic prices and import demand.
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