China’s appetite for major commodities has been growing at an impressive rate, defying expectations and surpassing forecasts. In a recent note, Goldman Sachs highlighted the significant surge in demand for copper, iron ore, and oil, all of which have outperformed the investment bank’s full-year expectations. This article will delve into the factors contributing to this robust trend, focusing on China’s green economy, property completions, and the recovery in its manufacturing sector.
While China’s property sector continues to struggle in its recovery efforts, the nation’s green economy has showcased remarkable resilience. According to Goldman Sachs, this strength in demand can be primarily attributed to the growth in China’s onshore solar installations, which have already exceeded the combined level of all previous years’ installations in 2023 alone. The country’s operating solar capacity stands at an impressive 228 GW, surpassing the rest of the world combined, as reported by the Global Energy Monitor. As a result, China is on track to double its wind and solar capacity five years ahead of its 2030 goals.
China’s green copper demand has experienced a substantial surge, with a year-on-year increase of 71% in July, according to data compiled by Goldman Sachs. The demand growth has been particularly significant in the renewables sector, where copper demand has risen by 130% year-to-date, driven by the booming solar industry. As China maintains its focus on renewable energy, the demand for copper, a crucial component in solar installations, is expected to remain strong in the foreseeable future.
China’s manufacturing sector plays a crucial role in driving demand not only for copper but also for other base metals like aluminum. The recent improvement in manufacturing trends during the third quarter has coincided with a surge in the import levels of base metals. In August, China’s industrial production grew by 4.5% compared to the previous year, surpassing expectations. Within this sector, the value added of equipment manufacturing grew by 5.4% year-on-year.
Goldman Sachs predicts that the positive drivers for onshore aluminum and copper demand will continue to support growth well into the next year. This positive outlook is primarily driven by the sticky nature of these drivers, indicating a sustained increase in demand.
China’s oil demand has also experienced a significant increase, mainly due to the rapid recovery in oil-intensive service sectors such as transportation. Record internal mobility, as indicated by robust congestion and domestic flight data, has supported China’s demand for oil. However, Goldman Sachs anticipates a potential dip in growth, with a significant deceleration expected next year. This projection is aligned with the belief that the current robust level of oil demand is unlikely to be sustainable in the long term.
The surge in commodities demand is noteworthy considering the broader macroeconomic challenges faced by China. Despite a faltering growth story and a struggling stock market, commodities have responded positively to the monetary expansion implemented by the People’s Bank of China (PBOC). This divergence between the performance of commodities and the stock market highlights investors’ confidence in commodities as a more favorable investment option. The PBOC’s commitment to maintaining stable credit expansion and sufficient liquidity further supports this perception.
China’s growing demand for commodities, particularly copper, iron ore, and oil, showcases a robust trend that exceeds expectations. The strength in demand can be primarily attributed to the country’s green economy, onshore solar installations, and the recovery in the manufacturing sector. While challenges persist, such as the unstable property sector and potential deceleration in oil demand, the positive drivers for commodities suggest a supportive underpinning for future growth. As China continues its transition towards a greener economy and enhances its manufacturing capabilities, the demand for key commodities is expected to keep thriving.