Prepare for lower bulk commodity demand in the years ahead, Wood Mackenzie says.

A recent report from the global research consultancy forecasts that Chinese steel demand is set to decline, as authorities put the clamps on China’s property market.

“We forecast steel demand in the property sector to slow to 2.9 per cent annual growth in 2019, reaching 1.1 per cent in 2020 before entering negative growth territory after 2020,” the research consultancy said.

And over that time frame, the analysts said such a change in demand fundamentals would have a material effect on market pricing for iron ore and coal — Australia’s two largest export items.

The latest forecast follows a recent shift in sentiment from Communist Party leaders, towards a more conservative stance around housing.

In particular, the analysts noted that a meeting on July 31 marked the first time top policy makers had specifically stated that “the property sector will not be used as a stimulus to boost economic growth”.

In line with that commentary, authorities have also implemented lending restrictions for both property developers and home buyers.

Chinese housing data for July showed price growth slowed for the second straight month, while the recent focus on slum redevelopment — the provision of basic housing for third and fourth-tier Chinese cities — is also expected to near its end this year.

The net result is that Wood Mackenzie expects the property market will “experience some challenging times in the next couple of years”.

2019 has been a booming year for iron ore prices, helped by a dam catastrophe in Brazil that unexpectedly clamped the global supply chain.

Prices are back off their record highs well above $US100 ($145) a tonne from earlier this year, although benchmark 62 per cent fines climbed back to a five-week high overnight of $US94.66.

However, Wood Mackenzie said markets should take note of the longer-term demand-side outlook.

“As property steel demand accounts for more than one-third of China’s total steel demand, its slowdown will have a huge impact on crude steel production and iron ore and coking coal demand in the longer term,” the analysts said.

Read more:

Australia could record its first current account surplus since 1975 thanks to strong iron ore prices

Money Talks: The key to picking small cap resources stocks in a volatile market

Trade war schmade war? How Trump’s Don Quixote moment may affect commodities