China’s property slowdown is set to further weaken metals demand that’s already been hit by a trade war with the U.S. and a stronger dollar, sending prices toward their first annual loss in three years, according to a unit of GMK Holdings Co., which owns the country’s largest private copper smelter.
“Expectations on the macro side have worsened a lot from the mid-year,” said Jiang Hang, head of commodity investment research at GM Corporation Ltd. “The current downturn in property sales will be an issue for a rather long time. That will also make front-end investment slow down gradually.” GM is an investment unit of GMK, which owns the Xiangguang copper plant in Shandong.
Chinese home price inflation slowed in September for the first time in half a year, adding to signs of a residential property market slowdown triggered by the government’s housing curbs. That’s raising concern about China’s demand for metals such as copper and other materials that are used heavily in construction.
There’s also growing evidence that the trade war is hurting the economy, and metals consumption, according to Jiang. Shipments of air conditioning units fell 8.5 percent in September from a year ago, according to government data. China’s manufacturing purchasing managers index slid in October and a gauge of new orders for export declined to the lowest since early 2016.
And the situation may get worse. The U.S. is preparing to announce tariffs on all remaining Chinese imports by early December if talks between presidents Donald Trump and Xi Jinping fail to ease the trade war.
The stronger dollar “may cause another layer of weakness, followed by weakness from the yuan,” Jiang said. “All these will pressure commodities in the long run.”
The yuan fell to the lowest in a decade against the greenback this week and the Bloomberg Dollar Spot Index climbed to the highest since May 2017. The London Metal Exchange’s index of six metals tumbled about 16 percent this year, heading for the first annual loss since 2015.
Short-Term Divide Despite bearishness over the longer term, Jiang says the market is divided over the six-month outlook due to uncertainty about property and the extent of a boost in infrastructure developments. Rio Tinto Group Chief Executive Officer Jean-Sebastien Jacques said on Tuesday that its Chinese order books for raw materials including iron ore and copper remain full.
“Whether Chinese property developers will build houses to replenish stockpiles after years of de-stocking? If they do, how big scale it will be?” Jiang said. “On infrastructure, we haven’t seen notable pickup in orders yet. We are waiting to see how significant this round of investment could boost metals demand.”
Jiang said he is most bullish on nickel because the global market is expected to stay in deficit next year as Chinese consumers demand higher grades of stainless steel, requiring more of the metal, in addition to the demand boost expected from the booming electric vehicles sector.