Don’t worry – Evergrande’s bankruptcy won’t cripple China’s iron ore and copper demand in 2024
China’s sickly property market was dealt another blow when debt-laden property behemoth Evergrande was forced into liquidation on January 29.
It has raised fears about commodity demand in 2024. Evergrande has been the canary in the coal mine for China’s ailing property and construction sector, which consumes a huge amount of copper, aluminium, and iron ore every year.
The property sector accounted for around 30.8% of China’s steel consumption in 2023 at 280Mt, down from about 36.2% in 2020.
Copper demand from construction and home appliance sectors makes up more than 20% of the country’s total demand.
The good news is any contagion from Evergrande may be contained.
According to S&P Global, market participants believe that while Evergrande’s liquidation is likely to be “a lengthy process fraught with uncertainties”, the Chinese government will ensure the delivery of pre-sold homes to prevent a snowball effect on other developers and the economy.
This will bode well for commodities demand, it says.
Iron ore prices have remained stubbornly high, despite these headwinds, with growing signs of life emerging at the smaller, more marginal end of the market.
Amid subdued domestic steel demand, China’s finished steel exports in 2023 reached a seven-year high of 90.264Mt, up 36.2% on the year.
Steel exports are likely to remain strong in 2024, amid high steel production, stagnant domestic demand, and resilient steel consumption in emerging economies.
“Steel exports may likely drop to around 82Mt in 2024, but if the steel market dynamics seen in 2023 persist into 2024, it could be higher,” S&P Global says.
While copper demand improvement from China’s real estate sector is expected to be minimal in 2024, green energy is here to pick up the slack.
“Led by a robust solar power intake, China’s refined copper demand is expected to grow further from a previous forecast of 4.7% on the year, equivalent to 643,000 mt of copper,” S&P says.