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China's NPC Event Concludes with Muted Impact on Commodity Demands


Leo Gonzalez

March 11, 2024 - 02:09 am


Economic Ambitions and Commodities: A Juxtaposition at China's Political Summit

(Bloomberg) – The much-anticipated National People's Congress (NPC), China’s paramount political event of the year, concluded its annual session in Beijing this Monday, leaving the commodities market underwhelmed. Contrary to the expectations of those bullish about commodities, the event did not trigger a hike in demands for pivotal commodities like iron ore and copper in the world's premier market. This paradox underscores the market's skepticism about China’s stated economic growth targets and the strategies planned to achieve them.

The Gap Between Ambitious Goals and Market Confidence

The aspirations for an expanded economy by 5% in the current year, a target set by Chinese policymakers, strongly indicate the necessity for fiscal stimulus that surpasses the outlined measures. The silver lining, however, lies in the potential unleashing of improved commodity investments if the government resorts to bolstering growth with augmented outlays on infrastructure projects that heavily depend on energy and metals.

Evaluating Policy Decisions and their Impact on Growth

“The overriding concern will be the determination of policymakers to achieve and maintain China’s economic growth target of 'around 5%' this year,” remarked Vivek Dhar, an analyst at the Commonwealth Bank of Australia, in a briefing note. Dhar posits that while the goal is ambitious, there’s still room for additional infrastructure-related stimulus should the growth falter below even the policymakers’ conservative expectations.

Benefiting Metal Consumption and EV Demand

Policy directives geared towards encouraging companies to modernize industrial apparatus and incentivizing consumers to replace outdated cars and domestic appliances more frequently could bolster metal consumption. This move carries particular significance in potentially rejuvenating the cooled electric vehicle (EV) market and advancing the rise of EVs in overall vehicular fleet proportions.

The Perilous Real Estate Sector

Notwithstanding, the precarious state of the property market presents a significant obstacle, as additional public or governmental investment might only serve to counteract the sheer decline in demand due to the housing sector's volatility. Looking beyond the current crisis, Beijing envisions a transition where real estate's dominance as an economic driver is succeeded by emerging sectors, including EVs, renewable energy, and high-technology manufacturing. This transition is poised to eventually pivot China’s raw materials market strategy toward a more eco-friendly focus.

A Shift Towards Sustainable Commodities

An overview provided by ANZ Group Holdings Ltd. suggests a rather bleak outlook for commodities such as oil, steel, and iron ore that previously held sway. As China ushers in a new set of preferences, metals, vital minerals, and cleaner energy fuels like gas are expected to be in heightened demand.

The Predominance of Coal in China's Power Mix

In the interim, concerns about persisting growth consolidate the need for inexpensive and dependable power sources. Amidst these concerns, China continues to lean on well-established energy sources, predominantly fossil fuels, and notably coal. Despite approaching its peak usage, coal consumption in China is likely to plateau over a prolonged period, suggested an official from the national coal association, indicating that the country's energy transition might be more protracted than anticipated.

Economic Indicators and Targets

Recently, there was a pause in the price deflation seen in China's consumer goods, marking the end of a streak of contractions and casting a spotlight on the potentials for economic growth in the world's second-largest economy. Both the leadership’s ambitious growth target of around 5% and the recent culmination of the NPC hint at an aggressive pursuit of economic revival amidst a nexus of challenges.

Bullion and Copper: Commodities in the Spotlight

The anticipation of a policy shift from the US Federal Reserve towards a more accommodative monetary approach may have ignited fervor in the bullion market. However, the surge that pushed gold prices to new heights had its roots in China. Meanwhile, the nation's copper smelters find themselves at a crucial crossroads as processing charges for imported ore plummet, spotlighting whether these enterprises might succumb to the burgeoning pressure to scale back production.

Upcoming Events and Observations

Closing Ceremony and Economic Releases

Monday, March 11:

  • The National People’s Congress wraps up with a closing ceremony scheduled for 3:00 PM in Beijing.
  • By March 15, China is slated to disclose figures for aggregate financing and money supply indicators for February.

Scheduled Events

Tuesday, March 12:

  • No major events are slated for this day.

Coal and Iron Ore in the Chinese Economy

Wednesday, March 13:

  • The China Coal Transport and Distribution Association (CCTD) holds its routine online briefing on Chinese coal at 3:00 PM.
  • Day one of Mysteel's international iron ore conference kicks off in Qingdao.

Additional Industry Updates

Thursday, March 14:

  • The international iron ore conference hosted by Mysteel enters its second day in Qingdao.
  • Earnings announcements expected from Rusal.

Economic Indicators and Commodities Data

Friday, March 15:

  • China sets its monthly medium-term lending facility rate at 9:20 AM.
  • China releases new home prices for February at 9:30 AM, an economic indicator closely watched by market analysts.
  • Weekly statistics on China's iron ore port stockpiles are to be released.
  • Later in the afternoon, around 3:30 PM, the Shanghai exchange is scheduled to publish weekly commodities inventory data.
  • The final day of Mysteel's international iron ore conference unfolds.

Assistance and Acknowledgments

--With input from journalist Alfred Cang.

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