China Lifts Gloom Around Commodities Markets Even If Recovery Is Months Away

(Bloomberg) — China’s latest efforts to support the economy are lifting the gloom around commodities markets although a sustained recovery in demand is probably still months away.

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Beijing’s twin announcements to deal with its biggest obstacles to growth — a real estate market in crisis and crushing virus controls — have fanned hopes that the government is turning its attention to lifting the economy out of the funk that has persisted for over a year. A thawing in US relations has also lifted sentiment.

Demand for energy and materials would broadly benefit from any increases in industrial activity. China is the world’s biggest user of metals like steel and copper, which are highly contingent on construction, while fewer restrictions on travel would be a boon to fuel consumption.

Although the refinements to Covid Zero detailed in the government’s 20-point plan last week won’t mean an immediate end to lockdowns — those are likely to continue, albeit in a more targeted fashion, if the spread of omicron worsens over the winter — they may indicate preparation for a broader reopening next year.

The looser virus controls could lift Chinese oil demand by 1 million barrels a day next year, said Zhou Mi, an analyst at Chaos Research Institute in Shanghai, which is affiliated with Chaos Ternary Futures Co. China is the second-biggest oil user after the US and in October consumed about 15 million barrels daily.

“However, we see headwinds in the short-term as the 20 new measures will basically force the nation to passively co-exist with the virus,” Zhou said. “That could lead to an expansion of the outbreak, which means chaotic a few months ahead.”

The 16 measures for the property sector, meanwhile, are more about steadying the market and reducing the chances of a crash, rather than engineering an outright recovery that would run counter to Beijing’s original crackdown on what it perceived was a bubble. And their success is closely entwined with how China’s virus policies evolve.

The return of housing demand hinges on a recovery in homebuyers’ sentiment and employment prospects, according to a note from Fitch Ratings. And that “depends on sustained easing of China’s pandemic-related controls.”

UBS AG said the property measures may be a turning point for that market, while the new virus measures are in line with expectations for a broader shift in policy in the second quarter of next year. As such, the bank said it expects market fundamentals to weaken in the near-term before a better buying opportunity for commodities and mining stocks presents in three to six months.

The Week’s Diary

(All times Beijing unless noted otherwise.)

Wednesday, Nov. 16

  • China new home prices for October, 09:30

  • CCTD’s weekly online briefing on the coal market, 15:00

  • Antaike aluminum conference in Sanya, Hainan, day 1

  • SMM copper conference in Yixing, Jiangsu, day 2

Thursday, Nov. 17

  • China October output data for base metals and oil products

  • Antaike aluminum conference in Sanya, Hainan, day 2

  • SMM copper conference in Yixing, Jiangsu, day 3

Friday, Nov. 18

  • China’s 2nd batch of October trade data, including agricultural imports; LNG & pipeline gas imports; oil products trade breakdown; alumina, copper and rare-earth product exports; bauxite, steel & aluminum product imports

  • China weekly iron ore port stockpiles

  • Shanghai exchange weekly commodities inventory, ~15:30

Saturday, Nov, 19

  • Nothing major scheduled

Sunday, Nov. 20

On The Wire

China just reported electric-vehicle sales data for October, and the numbers continue to break records. A total of 722,000 plug-in passenger and commercial vehicles were sold. Battery-electric vehicles were 22% of the passenger car market, and plug-in hybrids claimed another 9% share.

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