We've been pitching the construction malaise, particularly in reference to copper, for over a year. It's one of those big, big drivers of economic activity to which attention must be paid.
From Bloomberg via ScrapMonster, April 27:
After a bullish start to 2023, iron ore is struggling with the reality that China’s property sector — the steelmaking material’s largest demand driver for two decades — is still far from a robust recovery.
After a bullish start to 2023, iron ore is struggling with the reality that China’s property sector — the steelmaking material’s largest demand driver for two decades — is still far from a robust recovery.
Iron ore dipped below $100 a ton this week for the first time since early December, becoming the biggest victim of a bearish mood across industrial metals. The main culprit is a weaker-than-expected peak construction season, which runs from April through June, highlighting China’s uneven rebound.
President Xi Jinping’s flagship campaign to squeeze debt from the real estate sector has stifled commodities demand, as developers focus on completing existing projects with few new ones in the pipeline. That’s crimped the appetite for iron ore and metals during a period when building sites should be buzzing.
“Developers are very reluctant to start new projects outside of the top-tier cities, and that’s where the bulk of steel demand used to come from,” said Tomas Gutierrez, an analyst at Kallanish Commodities Ltd. Iron ore was “overhyped” as the price rallied late last year into March, he added.
China’s steelmakers are already losing money and cutting output in an ominous sign for global miners. Prices for iron ore to copper — and the fortunes of major producers such as BHP Group and Rio Tinto Group — have been tied to the nation’s property booms and slowdowns since 2000.
Chinese mills monitored by the country’s statistic bureau made a first-quarter loss for the first time in more than a decade, according to data from the National Bureau of Statistics released Thursday.
Still Shrinking
China’s economy grew at the fastest pace in a year during the first quarter, and several banks recently raised growth forecasts, but the rebound has been patchy. The recovery has been led by consumer sectors, with the government so far reluctant to unleash major stimulus.While real estate has turned a corner in terms of prices and sales this year, fresh investment is still falling. Property starts will decline 12.5% in 2023, according to Hong Kong-based consultancy Real Estate Foresight. Citigroup Inc. is even more pessimistic, with a forecast for a 40% contraction.
“China’s property sector is not completely out of the woods and steel consumption from the sector is unlikely to see a meaningful turnaround this year,” Citi analysts including Max Layton wrote in a note this week.
Iron ore slipped to $99.90 a ton on Wednesday in Singapore before rebounding, and was down 0.7% at $104.40 as of 3 p.m. local time Thursday. Prices are down around 16% in April, heading for the biggest monthly drop since October, after surging above $132 in mid-March.
‘Missed Expectations’
The property sector typically accounts for between a third and half of metals use in China, and the construction malaise has fed into base metals. Copper fell to the lowest level in a month on the London Metal Exchange this week, while aluminum was down for a sixth session on Thursday.“Chinese copper demand has missed expectations,” Ni Hongyan, the vice president of trading firm Eagle Metal International Pte Ltd. told an industry conference this week in Shandong province. She expects prices to go even lower, under pressure also from US monetary tightening and financial stress....
....MUCH MORE
As the old-timers used to say: "Pay attention or pay the offer."
This next post was written as copper was on its way to $3.13 in July 2022, down from $5.04 in the February-March '22 run-up:
May 2022
Copper: It Is All About China's Economy
If China ever begins tearing down the tens of millions of apartments that are sitting empty the amount of supply from copper that will be recycled is mind boggling. Barring that, the huge cutback in residential construction has taken one of the largest demand factors out of the equation and except for the run-up in price we saw immediately after Russia invaded Ukraine, when it appeared China was converting their foreign exchange holdings into just about any kind of tangible stuff that would be storable, grains, metals etc., the trend since the Shanghai lockdowns became widely publicized has been pretty much unidirectional....
A few months later it actually happened:
September 1, 2022
"China tears down tower blocks in effort to boost stalling economy" (plus Keynes and copper)
Up through last week's:
Copper: No Dramatic Impact From China's Re-Opening
And if CRE owners follow Kyle Bass' advice and tear down their buildings we'll have a whole new source of supply.Just kidding about "new", around 2/3 of copper is recycled so the copper in those buildings would come onto the market eventually, it's just a question of when.
More important will be the effect of any recession on demand in Europe and the U.S., particularly in construction and less so in electric vehicles. Wind turbine manufacturers, a very large per unit user of Cu have, in the U.S., the $3/4 Trillion in loans and tax credits that wind farm developers will suckle upon....*****....Most active (May) futures 4.0345 -0.0425 (-1.04%) . Here's the last few months of prices from the COMEX, you can see the burst of enthusiasm on the announcement of the end of the Covid controls and then, meh:
Right now the futures are at $3.9110 up 0.0270 and bouncing back from a multi-month low of $3.8165 achieved earlier today.
There are a few dozen posts both preceding and following that May 2022 post, use the 'search blog' box if interested. Don't pay the offer. Instead, enjoy some whining and moaning from March 13 when a couple banks were in the news:
Copper: Oh Who Knows Any More
Things were proceeding according to plan, the dollar was making a major move higher and then, some rat-bastard bankers who didn't want to pay the, what, eight basis points, to hedge their interest rate exposure waited too long to raise capital while at the same time their customers, the venture capitalists and their portfolio companies, did nothing.
I mentioned a few days ago that these Jedi knights, these masters of the universe could have shored up what they are calling the heart of the Silicon Valley ecosystem, that they could have shored up the bank with three billion or so dollars with maybe another $1 or 2 billion to follow but no, just like their rat-bastard banker the rat-bastard VC's did nothing.
Meaning:
the dollar—proxied by the DXY, it excludes China though so not perfect— was making a solid move to the upside from just above 101 in early February, the dollar which is greatly influenced by relative interest rates gets hammered on the flight to quality i.e. treasuries, and by the hope that the Fed will quit fighting inflation.
Meaning the copper market, which is in almost perfect balance at the moment and was thus trading off exogenous factors like oh, the strength or weakness of the dollar, did this:
Halting the decline that was developing so nicely.
And now we have supply coming back on the market from Panama and soon from Peru and China isn't reopening anywhere near as fast as the rah-rah guys said it would and the Chinese are sending copper out of the country and big supply is being developed for later in the decade and the market won't care because it's all about the dollar and interest rates and bailouts and some skinflint banker who didn't want to pay to hedge.
Here are the headlines at Mining.com, not that anyone cares (at the moment):
Panama gives First Quantum go-ahead to operate port terminal
China copper exports to jump in rare deliveries to LME depots
"Still humping the American Dream, that vision of the Big Winner somehow emerging from the last minute pre—dawn chaos of a stale Vegas casino. Big strike in Silver City. Beat the dealer and go home rich. Why not? I stopped at the Money Wheel and dropped a dollar on Thomas Jefferson—a $2 bill, the straight Freak ticket, thinking as always that some idle instinct bet might carry the whole thing off. But no. Just another two bucks down the tube. You bastards! No. Calm down. Learn to enjoy losing....
Excuse me, I have to take a moment
