India Metals: First signs of uptick in Chinese RE

20 Dec 2023 , 11:15 AM

Combined with continued uptick in industrial activity and FA investments, this bodes well for commodity demand. That said, steel exports from China remain elevated at an annual run-rate of 96mt, despite falling production. Domestic steel demand in India is strong, but premium to imports presents a risk. LME Al outlook is subdued amid weak global demand (falling premiums) and healthy Chinese production.

China sees a positive in RE after a long hiatus

New housing starts in China grew 4.7% YoY in November 2023. While this comes on a depleted base, this is a first positive reading since March 2021. If this continues — over time — this could pull up RE under construction and support the demand for metals. Other non RE data points – investment in fixed assets, auto sales and industrial activity continued to move up in November 2023; and would have supported the demand as well.

Steel – Chinese exports remain elevated

Chinese steel production stood at ~76mt in November 2023 and has declined steadily since the peak of 95.7mt in March 2023; led by weak pricing and mill level losses. However, steel exports have remained elevated at an annual run-rate of 96mt amid weak global demand. Strong demand in India has helped absorb healthy production and increasing net imports. Given the ~9/14% premium of domestic prices to non-FTA/FTA imports, analysts at IIFL Capital Services see risks to prices and spreads amid elevated RM prices. 

Aluminium – weak demand hurting LME Al

At ~US$ 2,200, LME Al prices remained capped, led by the weak demand (evident in falling global premiums) and rising production levels in China. This has also impacted UBC Scrap spreads in North America. Benign smelter costs provide no cost support to LME Al in the near term.