China’s Economic Conditions
In December 2021, China’s Political Bureau of the China Central Committee participated in the Central Economic Work Conference to clarify the direction and demands required for stable growth from the commodity market. From the “Two Sessions” government work report, the country has also confirmed that the country has achieved 5.5% GDP growth in 2022, which exceeded the previous expectations for the market.
From the commodity market, ferrous, non-ferrous, and chemical products have a close relationship with downstream products such as real estate, infrastructure, and manufacturing.
Therefore, it can be gathered that the consumption and spending conditions of downstream products are reflective of the changes and the market mood. This method of assessment can also reflect aspects of speed and intensity of demand.
Manufacturing and Construction
From Mid-October, local government special bonds have been issued in relatively large volumes, this supports infrastructure investment in the fourth quarter. Additionally, the number of new infrastructure contracts signed by the six key enterprises has begun to pick up since the fourth quarter of 2021.
Nonetheless, while the contracts and support have increased, in early December, the demand for building materials (steel and concrete) continued to decline. The fall indicates signs of a seasonal drop in demand. Mysteel’s record of the weekly consumption of rebar was also about 2.8 million tons, a decrease of 18.34% in comparison to the same period last year.
At present, a seasonal decline in demand is expected and the pandemic has also contributed to the market outlook. Overall, demand has not improved significantly in the fourth quarter and the housing construction materials sector remains relatively weak.
Aluminium
In early December, the operating rate of China’s domestic aluminium enterprises continued to drop by 1.5ppt to 64.3%. The inventory of aluminium rods rose slightly from 7,000 tons to 85,500 tons, and the processing fee of aluminium rods rose slightly from 139 yuan to 240 yuan/ton.
In that month, the productivity from the Shandong region decreased, this is a result of the drop in temperature and the subsequent cessation of construction projects such as infrastructure and real estate constructions. Coupled with a fall in enterprise orders, it has become unsustainable to maintain the large operating rates.
Otherwise, the aluminum and construction industry also face a multitude of problems.
- Though domestic pandemic prevention and control continue to be in effect, the outlook remains grim.
- The production and transportation of raw materials and finished products remain difficult as the number of companies that remain open has decreased and some enterprises have also begun to prepare for the holidays/New Year.
- Orders in South China have also begun to decrease, and the willingness of companies to stock up has weakened as the operating rate has declined.
- As industry competition intensifies, processing fees are facing downward pressure, which is expected to have a certain impact on the preceding work schedules and aluminum prices.
Zinc
For Zinc, about 33% of the downstream finished products directly correspond to infrastructure-related fields. Among these products, galvanized steel is the most widely used in new and old infrastructure.
According to Mysteel, the output of galvanized sheets at sample steel mills fell by 29,000 tons to 886,000 tons last week, and the inventory of finished products continues to lessen.
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