China Tries to Boost Domestic Consumption

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China has been the main driver of demand this decade for the rise in copper, aluminum, steel and a host of other metals many of which are used in vast quantities by the country’s construction industry. To what extent the drop in metal prices in China has been due to the slump in housing starts or to a drop in export market demand is debatable. But as a consumer of one third of the country’s aluminum, there is no doubt the slumping Chinese housing market has hit demand severely.

 So much consumer confidence and hence demand hinges on the property market, that the Ministry of Finance has been forced to act - doing away with property stamp tax, and cutting mortgage rates. From November 1, the property deed tax will be reduced to 1% from 3-5% for people buying their first home if it is smaller than 90 square meters (970 sq ft ” yes that’s a family apartment in Shanghai!) Will this be enough to boost construction and see a return to the levels of demand for copper and aluminum we saw for much of this decade? In itself probably not, but these changes are an example of how the Chinese government is moving swiftly and widely to support demand and sustain growth at acceptable levels. Property stocks rose, lifting the Shanghai Exchange for the first time in three days on the back of the news. However, analysts have said property prices are still too high and further market falls are expected even if demand does pick up a little. Both aluminum and steel producers are therefore cutting production in an attempt to match supply to falling demand and provide some support to prices. Domestic prices in China have stabilized somewhat these last few days following weekly falls over the last two months. Whether this trend continues remains to be seen.

–Stuart Burns

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