Commodities are steady as China promises more support for growth

(Bloomberg) — Commodity prices steadied after China promised more support for its stuttering economy.

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Although the Finance Ministry did not reveal concrete spending plans for the fiscal stimulus at a closely watched briefing on Saturday, investors were reassured by its pledges to support growth.

These include more aid for the crisis-ravaged property sector – a cornerstone of China’s commodity demand – and heavily indebted local authorities, as well as indications that government lending will be expanded.

Singapore iron ore futures reversed an early decline to advance 2.4 percent to 108.75 a tonne by 1:24 p.m. Prices for the steelmaking material have been on a roller coaster this year, climbing above $140 a tonne in January before falling below $90. last month.

The ministry has shown “a very positive commitment” to follow through on previously announced policies, said Li Xuezhi, head of the Chaos Ternary Research Institute. “We’re relatively optimistic,” he said.

Metals have rallied in recent weeks after Beijing launched a wave of monetary intervention to support growth. But commodity investors have called for more action on the fiscal side of the equation, which has a more direct impact on materials consumption and is needed to replace lost demand from China’s prolonged housing slump.

As such, the government’s focus on plans to revive the real estate sector will be welcomed by the markets, not only through demand for raw materials, but also because housing is such an important store of wealth for the Chinese.

The reaction to other commodities, apart from iron ore, was more muted. Copper on the London Metal Exchange fell 0.1 percent, while Brent crude futures were 1.2 percent lower and grain futures softened.

Property crisis

The housing crisis has necessarily reduced the sector’s importance to China’s steel mills, with construction accounting for 24 percent of consumption in 2023 from 42 percent in 2011, according to mining giant BHP Group Ltd. Car production, by contrast, fell from 20 % to 30% in that time, while steel exports have risen sharply in the past two years.

Copper has more widespread applications than steel and has a leading role in the energy transition, although construction still accounts for nearly a fifth of the market, according to Citic Securities Co. The prices of other metals such as aluminum and zinc, and fuels such as diesel, are also influenced by the level of construction site activity, as well as the purchases of durable goods that typically accompany a new home.

It is the focus on consumption growth that is expected to guide the government’s fiscal response to its economic woes. Decades of urbanization have saturated the space for state investment in metal-intensive infrastructure, which has become much less reliable as an engine of growth. But again, the finance ministry’s briefing contained some new indications of how the government plans to increase spending among its citizens.

The extent of China’s challenges on this front was highlighted once again by Sunday’s price data, which showed the economy is being hit hard by deflationary pressures. Consumer prices rose less than estimates in September, while factory-gate prices fell for a 24th consecutive month, underscoring the need for additional policy support.

Details – and a price tag – for the enhanced tax measures may yet be forthcoming, perhaps when Chinese lawmakers meet later this month. But in the meantime, commodity bulls are likely to tighten their horns until the extent of the government’s support is revealed.

Wheat, corn and soybean futures fell slightly in Chicago, adding to recent declines on sluggish feed consumption and abundant domestic supply in China. Saturday’s briefing offered little hope for a significant improvement in Chinese demand.

“Given the size of China in the grain market, whenever they pull back, it’s seen quickly,” said Dennis Voznesenski, associate director of sustainable and agricultural economics at the Commonwealth Bank of Australia.

On the Wire

The Chinese company Dongfang Electric Corp. surprised the offshore wind industry with an announcement that it had built a new turbine radically larger than anything previously available in the sector.

Goldman Sachs Group Inc. upgraded its forecasts for China’s economic growth in 2024 and 2025 after Beijing unveiled a series of measures to support growth.

Alumina futures extended their rally to a new record high in Shanghai, with the key raw material for aluminum smelters up more than 40 percent this year on tightening supplies.

China continued to step up support for the economy, promising more aid for the sagging housing sector and indebted local governments. But officials have yet to convince economists that they are doing enough to beat deflation.

This week’s journal

(Always Beijing unless noted.)

Monday, October 14:

  • China’s first batch of September trade data, including imports of steel, iron ore and copper; exports of steel, aluminum and rare earths; oil, gas and coal imports; imports and exports of petroleum products; imports of soybeans, edible oil, rubber and edible meat and offal

  • China Customs holds a briefing on trade data in Beijing at 15:00

Tuesday, October 15:

  • China will release the monthly medium-term lending rate by October 25

  • OilChem hosts a webcast on China’s polyethylene market outlook for Q4, 2:00 p.m

Wednesday, October 16:

  • China Wind Power Conference in Beijing, Day 1

  • SMM Metal Industry Conference in Xining, Qinghai, Day 1

  • CCTD’s weekly online briefing on Chinese coal, 3:00 p.m

Thursday, October 17:

  • Chongqing Gas Exchange holds forum in Beijing, Day 1

  • China Wind Power Conference in Beijing, Day 2

  • SMM Metal Industry Conference in Xining, Qinghai, Day 2

Friday, October 18:

  • China house prices for September, 09:30

  • China’s industrial production for September, including steel and aluminum; coal, gas and power generation; and crude oil and refining. 10:00

    • Retail Sales, Fixed Asset Investments, Real Estate Investments, Residential Sales, Unemployment Rate

  • China’s second batch of September trade data, including agricultural imports; LNG and pipeline gas imports; breakdown of trade in petroleum products; exports of alumina, copper and rare earth products; imports of bauxite, steel and aluminum products

  • China’s weekly iron ore port inventories

  • Shanghai Exchange Weekly Commodity Inventory, ~15:00

  • The Chongqing Gas Exchange holds a forum in Beijing on the 2nd day

  • China Wind Power Conference in Beijing, Day 3

  • SMM Metal Industry Conference in Xining, Qinghai, Day 3

  • EARNINGS: Zijin Mining, CATL

–With assistance from Martin Ritchie, Keira Wright and Hallie Gu.

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