Commodity prices stabilized following China’s commitment to bolster its struggling economy. Although the finance ministry refrained from announcing specific fiscal stimulus plans during a highly anticipated briefing on Saturday, investors found reassurance in the government’s pledge to stimulate growth. This includes additional support for the beleaguered property sector—crucial for commodities demand in China—and assistance for financially burdened local authorities, along with indications of expanded government borrowing.
In Singapore, iron ore futures rebounded from an initial decline, rising 0.4% to $106.60 per ton as of 10:02 a.m. local time. Prices for this steelmaking material have fluctuated significantly this year, peaking above $140 per ton in January before plummeting below $90 last month.
Copper prices have exhibited a similar pattern, reaching an all-time high exceeding $11,000 per ton in May before experiencing a downturn. The three-month contract on the London Metal Exchange reduced its losses, trading 0.9% lower at $9,707 per ton. Brent crude oil futures fell by 1.5%, having previously dropped as much as 2%. China stands as the largest global importer of all three commodities.
Li Xuezhi, head of the Chaos Ternary Research Institute, remarked on the ministry’s “very positive commitment” to follow through on previously announced policies. “We maintain a relatively bullish outlook,” he noted.
In recent weeks, metals have surged as Beijing implemented a series of monetary measures to stimulate growth. However, commodities investors have been urging the government to introduce additional fiscal measures, which have a more immediate effect on material consumption and are essential to compensate for demand lost due to China’s extended real estate downturn.
The government’s focus on revitalizing the property sector is anticipated to be welcomed by markets, not only due to its impact on raw material demand but also because housing remains a vital store of wealth for many Chinese citizens.
The ongoing housing crisis has led to a decreased significance of the sector for Chinese steel mills. Construction accounted for 24% of steel consumption in 2023, a sharp decline from 42% in 2011, according to data from mining giant BHP Group Ltd. Conversely, the machinery manufacturing sector’s share has grown from 20% to 30% during the same period, while steel exports have surged over the last two years.
Copper, with its broader range of applications, plays a critical role in the energy transition, even as construction continues to represent nearly 20% of its market, according to Citic Securities Co. The prices of other metals, such as aluminum and zinc, along with fuels like diesel, are also swayed by construction activity and the purchasing of durable goods often associated with new homes.
The government’s focus on stimulating consumption is expected to guide its fiscal response to ongoing economic challenges. Years of urbanization have saturated the potential for metals-intensive state investment in infrastructure, making this approach less dependable as a growth driver. Nevertheless, the finance ministry’s briefing provided few new insights into how the government intends to increase spending among citizens.
Recent price data released on Sunday further illustrated the depth of China’s economic challenges, revealing persistent deflationary pressures. Consumer prices rose less than anticipated in September, while factory-gate prices fell for the 24th consecutive month, underscoring the necessity for additional policy support.
Details and financial estimates for proposed fiscal measures may emerge when Chinese legislators convene later this month. In the interim, commodities investors are likely to remain cautious until the scale of government support is clarified.
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