(Bloomberg) — Commodity prices stabilized after China pledged more support for its stagnant economy.
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Although the Treasury stopped short of revealing specific spending plans for fiscal stimulus at a closely watched conference on Saturday, investors were reassured by the Treasury's promise to boost growth. The plan includes further support for China's troubled real estate sector and heavily indebted local governments, which are key to China's demand for primary goods, as well as hints at increased government borrowing.
As of 10:02 a.m. local time, Singapore iron ore futures reversed an early decline and rose 0.4% to $106.60 per tonne. Prices for steelmaking materials have been on a roller coaster this year, rising above $140 a tonne in January but falling below $90 a ton last month.
The copper market has followed a similar trajectory, hitting a record above $11,000 per tonne in May before retreating. The London Metal Exchange's three-month contract pared losses, trading 0.9% lower at $9,707 a tonne. Brent crude oil futures fell 1.5% after falling as much as 2% earlier. China is the world's largest importer of all three products.
Li Xuezi, director of the Institute of Chaos Turnery, said the ministry had shown “very active efforts” in following up on previously announced policies. “We're relatively bullish,” he said.
Metals prices have risen in recent weeks as the Chinese government launched intensive financial interventions to support growth. But commodity investors are calling for further fiscal measures, which have a more direct impact on raw material consumption and are needed to make up for demand lost in China's long real estate recession.
Therefore, in addition to the demand for raw materials, housing is a very important store of wealth for the Chinese people, so the government's focus on the real estate sector optimization plan will be welcomed by the market.
housing crisis
The housing crisis has inevitably reduced the sector's importance for Chinese steelmakers, with mining giant BHP Group predicting that construction's share of consumption will rise from 42% in 2011 to 24% in 2023. It becomes. In contrast, machinery manufacturing rose from 20% to 24% in 2023. During this period, steel exports increased by 30%, but in the past two years, steel exports have increased sharply.
Although copper benefits from a wider range of applications than steel and plays a leading role in the energy transition, construction still accounts for almost a fifth of the market, according to Citic Securities. It is also affected by the price of other metals such as aluminum and zinc and fuels such as diesel, the level of activity on the construction site and the purchase of durable goods that typically accompany a new home.
A focus on increasing consumption is expected to determine the direction of the government's fiscal response to the economic crisis. Decades of urbanization have saturated the space for metal-intensive state investment in infrastructure, making it far less reliable as a driver of growth. But again, the Treasury briefing contained few new hints about how the government plans to raise public spending.
The extent of China's challenges on this front was once again revealed by Sunday's price data, which showed the economy suffering heavily from deflationary pressures. Although consumer prices rose less than expected in September, factory prices fell for the 24th straight month, highlighting the need for further policy support.
Details about the enhanced fiscal measures and their price could still be announced when Chinese lawmakers meet, perhaps later this month. But in the meantime, commodity bulls will likely hold back until the scale of government support becomes clearer.
–With assistance from Martin Ritchie.
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