(Bloomberg) -- Commodities prices steadied after China promised greater support for its stuttering economy.
Although the finance ministry stopped short of unveiling concrete spending plans for fiscal stimulus at a closely watched briefing on Saturday, investors were reassured by its pledges to shore up growth. They include more help for the crisis-wracked property sector — a keystone of commodities demand in China — and heavily indebted local authorities, as well as hints that government borrowing will be expanded.
Iron ore futures in Singapore reversed an early decline to rise 0.4% to $106.60 a ton in Singapore as of 10:02 a.m. local time. Prices of the steel-making material have been on a roller-coaster this year, climbing above $140 a ton in January before sinking below $90 last month.
The copper market has followed a similar trajectory, hitting a record north of $11,000 a ton in May before retreating. The three-month contract on the London Metal Exchange pared losses to trade 0.9% lower at $9,707 a ton. Brent crude oil futures fell 1.5%, after dropping as much as 2% earlier. China is the world’s biggest importer of all three commodities.
The ministry showed “a very positive commitment” to following up on previously announced policies, said Li Xuezhi, head of Chaos Ternary Research Institute. “We are relatively bullish,” he said.
Metals have rallied in recent weeks after Beijing launched a barrage of monetary interventions to support growth. But commodities investors have clamored for further measures on the fiscal side of the equation, which has a more direct impact on consumption of materials, and is needed to replace demand lost to China’s prolonged real estate slump.
As such, the government’s focus on plans to right the property sector will be welcomed by markets, not only through demand for raw materials but because housing is such an important store of wealth for Chinese people.
Housing Crisis
The housing crisis has of necessity shrunk the sector’s importance to Chinese steel mills, with construction accounting for 24% of consumption in 2023 from 42% in 2011, according to mining giant BHP Group Ltd. Machinery-making by contrast has gone from 20% to 30% in that time, while steel exports have risen sharply over the past two years.
Copper benefits from more widespread applications than steel and has a starring role in the energy transition, although construction still accounts for almost a fifth of the market, according to Citic Securities Co. Prices of other metals such as aluminum and zinc, and fuels like diesel, are also influenced by the level of activity on building sites, as well as the purchases of durable goods that typically accompany a new home.
It’s the emphasis on boosting consumption which is expected to steer the government’s fiscal response to its economic woes. Decades of urbanization have saturated the space for metals-intensive state investment in infrastructure, which has become much less reliable as a driver of growth. But, again, the finance’s ministry’s briefing contained few new pointers on how the government plans to lift spending among its citizens.
The extent of China’s challenges on that front were laid bare once more by price data on Sunday, which showed the economy heavily beset by deflationary pressures. Consumer prices rose less than forecast in September, while at the factory-gate they fell for a 24th straight month, underscoring the need for further policy support.
Details — and a price tag — for enhanced fiscal measures could still be forthcoming, perhaps when Chinese legislators meet later this month. But in the meantime, commodities bulls are likely to draw in their horns until the scale of the government’s support is revealed.
--With assistance from Martin Ritchie.
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