China's modest stimulus is no big bang for commodities
Hopes that China's annual meeting of parliament would provide significant economic stimulus to boost commodities have been dashed, with Beijing instead largely promising a continuation of the mild stimulus policies seen last year.
The headline news of an economic growth target of about 5% and promises of efforts to boost consumption and tackle any fallout from the escalating trade war with the United States were encouraging.
But the parliament meeting this week also fell well short of the sort of stimulus announcements that would have given confidence to commodity markets that China, the world's biggest buyer of natural resources, is going to see meaningful growth in imports in 2025.
Rather, what's more likely is a continuation of the trends seen in 2024, where some commodities perform better than others but the overall story is still only of modest growth.
One of the major commodities that may continue to struggle to increase demand in 2025 is crude oil, with data from the first two months of the year suggesting that China, the world's biggest importer, is continuing along its recent soft path.
China's crude imports are estimated by LSEG Oil Research at 10.75 million barrels per day (bpd) in February, up slightly from January's 10.1 million bpd, but still down from the customs figure of 11.04 million bpd for 2024.
Part of the softer trend for China's imports of crude oil has been the government's support for consumers to move to what it calls new energy vehicles (NEVs), which are full electric vehicles or hybrids.
A subsidy scheme for switching to NEVs and more efficient household appliances was expanded earlier this year, implying that the rapid growth of NEVs, which now make up more than half of new car sales, will continue in 2025.
For those hoping that the focus on boosting consumer spending would somehow create stronger demand for steel, the news is not so good.
For the first time in five years China unveiled a plan to trim crude steel output in 2025 in a draft report from the state economic planner.
Although the report didn't specify the target for steel output, it's likely that it will be no more than 1 billion metric tons, the level around which China's steel production has oscillated since 2019.
If steel output does drop from the 1.005 billion tons recorded in 2024, it will likely weigh on China's imports of iron ore and coking coal, the two key raw materials.
IRON ORE, COAL
China buys about 75% of global seaborne iron ore, but imports are off to a weak start in 2025.
February arrivals are estimated at 83.92 million tons by commodity analysts Kpler, which would be the lowest monthly total since April 2019 and down from 104.34 million in January.
The Lunar New Year holidays may have impacted February imports, but putting them together with Kpler's January estimate gives a daily average of 3.19 million tons for the first two months of the year, down from 3.39 million for 2024.
Coal is another commodity that is struggling so far in 2025, with Kpler estimating China's seaborne imports of all grades were 29.82 million tons, the lowest since February 2024 and down from January's 35.9 million.
The weakness in coal imports is most likely a reflection of lower domestic prices, which have swelled inventories and cut demand for imported fuel.
If there was any positive news for commodities in China's announcements this week, it was related to those most associated with the energy transition.
The National Development and Reform Commission said in a statement on Wednesday that China will develop new offshore wind farms and accelerate the construction of what it called "new energy bases" across the western desert parts of the country.
The ongoing focus on building renewable energy capacity is positive for China's demand for metals such as copper, aluminium and silver, which is used in solar panel manufacturing.
Copper contracts on the Shanghai exchange rose in early trade on Thursday, gaining as much as 1.1% to 77,990 yuan ($10,757) a ton, and they are now up 5.2% since the end of last year, while aluminium futures gained a more modest 0.5%.
While some optimism over demand for metals in China is justified by the ongoing commitment to building renewable energy capacity and increasing the share of NEVs, the residential property sector remains a concern.
A bigger concern is the potential impact of the trade wars being launched by the administration of new U.S. President Donald Trump, which threaten to slow global growth and lift inflation.
Source: Reuters.
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- 3/7/2025
- Shipping News
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