Commodities Roundup: China’s property market; aerospace aluminum; oil prices

Here’s a quick rundown of news and thoughts from particular commodity sectors, including China’s property market, aerospace aluminum demand, oil prices and more.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

China’s property market woes

Debt default fears with respect to some of China’s most prominent real estate developers have sparked concerns about overall growth in the country and, in turn, a potential decline in demand for a number of commodities.

MetalMiner’s Stuart Burns delved into the Chinese property market space and its impact on commodities.

“The impact of China’s property market on the last supercycle and the current metals market cannot be overestimated,” Burns wrote. “Even today, China’s property sector accounts for an estimated 30% of the country’s near $15 trillion economy, the Financial Times reports, Construction alone accounts for about half of China’s steel consumption.

“Some metals, like copper, cobalt, nickel and lithium, hold promise in the longer term due to rising demand from electrification. There is evidence to suggest this will simply supplant demand from a dwindling construction sector.

“William Jackson, chief emerging markets economist at Capital Economics, is quoted as saying ‘China’s property sector is right at the end of a boom period,’ which would have profound consequences for suppliers of products like iron ore, coking coal and metals used in construction, like copper and aluminum.”

Chinese auto sales pick up in September

Sticking with China, auto sales in the country rose in September after several months of decline.

Chinese auto sales reached 2.07 million vehicles in September, the China Association of Automobile Manufacturers reported. Sales increased by 14.9% month over month. However, sales dropped 19.6% year over year.

Chinese auto sales in the year to date are up by 8.7% year over year.

Recovering aircraft aluminum demand

Meanwhile, in the aluminum market, recovering demand from the aerospace sector could spell bad news for automakers and the supply chain at large.

Amid the ongoing semiconductor shortage, automakers have slashed or idled production, thus leading to lower aluminum demand.

Meanwhile, while air travel has recovered, the global recovery has been “localized,” according to a recent forecast from Bain & Company.

However, announcements by Airbus earlier this year indicating that it plans to ramp up build rates could squeeze the market for other aluminum consumers.

“Airbus said in May that suppliers should be ready for an increase in production of its most popular single-aisle A320 jet,” Burns wrote. “It said production would increase to a firm rate of 64 jets a month by the second quarter of 2023. That is higher than the rate of 60 the company had been delivering pre-coronavirus. Furthermore, it is higher than the 45 targeted for the fourth quarter of 2021.”

If both aerospace and automotive recover to pre-pandemic aluminum demand levels, that would impact other aluminum consumers.

“For aluminum consumers — at least outside of the aerospace market — the worry that a resurgent automotive industry next year followed by an equally aggressive ramp-up of aerospace demand shortly thereafter will perpetuate the roller coaster ride we have seen this year in terms of prices and extended deliveries,” Burns added.

“At some point, both industries were going to come back to some semblance of normality. However, their respective returns were perhaps not expected to be so fast or so closely following on one from the other.”

Copper production up through July

Although supply concerns have cropped up more recently, the International Copper Study Group reported copper mine production increased by 3.6% through the first seven months of 2021.

The top producer, Chile, saw its output decline by 1% during the period. Meanwhile, Peru, the second-largest producer, increased copper mine production by 11%.

Steel capacity utilization down to 84.7%

While still at healthy levels, the U.S. steel capacity utilization rate dipped to 84.7% last week, according to the American Iron and Steel Institute.

Steel production for the week ending Oct. 23 reached 1.87 million net tons, or down 0.6% week over week. However, the total jumped 20.7% on a year-over-year basis.

Could oil price reach $100/barrel this year?

Oil prices had traded in a band between $65 and $75 per barrel for most of the year.

However, prices over the last two months have surged, reaching $85 per barrel this week. WTI crude oil reached its highest price since 2014.

Could oil prices reach $100/barrel by the end of this year? Goldman Sachs is bullish, Burns explained.

Global inventories are down and OPEC+ has refused to ramp up output as much as some, including President Joe Biden, might like.

Slowing growth and, in turn, demand for oil could prevent oil prices from reaching that $100 per barrel threshold. Even so, prices at the pump will likely remain elevated.

“Growth and, hence, demand could slow faster than expected,” Burns added. “China is certainly slowing both in terms of construction activity and output. According to Trading Economics, September’s GDP growth came in at just 0.2% compared to 1.2% for the same month last year. But whether the drag of power supply disruption will persist through the winter remains to be seen.

“What does seem clear is OPEC+ has no intention of increasing output for the benefit of consumers. High pump prices are likely to remain through well into next year.”

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