MNI: China H2 Commodities Demand To Show Mixed Sector Performance

Chinese demand for steel and copper construction products will fall over the second half despite government support measures, while appetite for those commodities used in manufacturing will grow as industrial output strengthens, local researchers have told MNI.

Linda Lin, manager of CRU Shanghai, a commodities research firm, noted demand for long steel products – mainly used in construction – will fall 1.5% y/y, while sheet demand – common for manufacturing – will rise by 2%.

Industrial production rose 7.0% y/y in the first two months of 2024 as authorities pushed advanced manufacturing and industrial upgrades, while property investment declined 9% despite tapering for the first time since February 2023, following last year's 9.6% decrease.

Beijing’s slow issuance of local government bonds since January had also driven low steel demand from the construction sector, according to Wang Guoqing, head researcher at commodity intelligence firm Lange Steel. However, authorities plan to increase bond issuance to CNY3.9 trillion this year, up from CNY3.8 trillion in 2023, which will provide limited support to steel appetite in H2, Wang added.

Construction sector demand remains a major downside risk for copper appetite due to the lower-than-expected level of housing completions this year, but overall growth for the metal will remain circa 4% in 2024 due to strong consumption from electric vehicles, renewable power, manufacturing and the consumer durables sector, said He Tianyu, a copper market researcher at CRU. “Property buyers are in wait-and-see mode with further price cuts anticipated,” He added.

China completed 76.94 million/sqm of residential floor space in February, down 20.2% y/y, according to official data. A Chinese commodity advisor recently told MNI that fiscal policy’s impact on steel will be less than previous years. (See MNI: Iron Ore Prices To Fall Further-China Advisor, Analyst)

OUTPUT CAP

Lin believes the government will strive to cap national crude steel output to around last year’s 1.019 billion tonnes, following remarks from authorities recently.

“Officials are concerned by overcapacity but at the same time local governments need employment and mills need cash flow to service debt, a balance will be found,” Lin argued.

Wang said authorities will enforce production controls more so in H2, which will help balance the market better.