The reignited optimism over improved Chinese demand in the global commodities market following Beijing\u2019s recent wave of stimulus measures will likely be short-lived, say analysts.<\/p>\n
\u201cContinuation of China\u2019s property sector downturn could further weigh on the Chinese economy,\u201d said Australia\u2019s Office of the Chief Economist (AOCE).<\/p>\n
\u201cSubdued 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,\u201d said research agency BMI, a unit of Fitch Solutions.\u00a0<\/p>\n
\nLacking details
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\u201cWe 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,\u201d said ING Think, the economic and financial analysis wing of Dutch multinational banking services firm ING.<\/p>\n
On September 24, the People\u2019s 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.\u00a0<\/p>\n
On September 26,\u00a0 a Politburo meeting in Beijing unveiled a raft of fiscal stimulus measures, resolving to \u201cstop the decline of the property market\u201d, \u2018limit new housing supply and adjust housing purchase restrictions, although details remain scarce.<\/p>\n
\nIron ore, copper major gainers
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The package resulted in the metals complex surging on hopes of demand increasing in China, the largest consumer of metals globally.\u00a0<\/p>\n
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.\u00a0\u00a0<\/p>\n
\u201c…the anticipated briefing by China\u2019s top economic planner, the National Development and Reform Commission, mostly disappointed, failing to deliver new pledges to boost government spending,\u201d said ING Think.<\/p>\n
BMI said there are additional mid to long-term downside risks to the overall industrial metals complex stemming from Chinese policymakers\u2019 efforts to rebalance the world\u2019s second-largest economy away from construction.\u00a0<\/p>\n
\nDollar impact
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Beijing is attempting to slow housebuilding in a move to limit house-building supply to reduce the stock of unsold homes and support prices. \u201cThis is expected to weigh heavily on metals prices, given that the Chinese construction sector constitutes a large portion of industrial metals\u2019 demand,\u201d it said.<\/p>\n
ING Think said any sustained pick up in metals prices will depend on the strength and the speed of the rollout of the measures. \u201cWe will look out for any potential investment into new infrastructure projects and energy transition sectors,\u201d it said.<\/p>\n
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.<\/p>\n
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.<\/p>\n
\nMore room for easing policies
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The Dutch bank\u2019s think-tank said its economist believes that there is still\u00a0 room for further easing (of policies) in the months ahead, and \u201cif we see a large fiscal policy push as well, momentum could recover heading into the fourth quarter\u201d.\u00a0<\/p>\n
The Chinese property market prices must stabilise if not recover. \u201cSecond, we need to see excess housing inventories come down towards historical norms. Until then, the drag on growth will continue,\u201d said ING Think.<\/p>\n
\u201cWe 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,\u201d it said.<\/p>\n
AOCE said China\u2019s growth is expected to moderate out to 2026 due to structural and demographic factors, including \u201cpopulation falls and slowing urbanisation\u201d.\u00a0<\/p>\n
\nNo impact on agri
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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.<\/p>\n
\u201cIn 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,\u201d it said.<\/p>\n
The research agency said the Chinese stimulus measures announced so far remain \u201cquite vague\u201d.\u00a0 China\u2019s 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.<\/p>\n