Big Trouble in Big China: Lack of Metals Demand

Metal processors and traders throughout China are facing a grim reality today. Thanks to major economic shifts both within the country and without, metals demand has plummeted. Of course, it’s not great news for the world’s biggest metals manufacturer. But what does it mean for the rest of the world?

A Hard Few Years with More to Come

When you boil it down, even the most complicated markets are just supply and demand. Of course, the world has seen extremes of both factors these past few years. In that time, we’ve seen the COVID-19 pandemic, the war in Ukraine, and the Ever Given getting stuck in the Suez Canal.
From 2020 to 2021, buyers throughout China were largely responsible for a global surge in metals prices. At the time, they were hedging their bets in expectation of further price increases. However, March and April saw massive declines in demand for their products.
According to an S&P Global article, internal property sales started the trend. Soon after came the COVID-19 lockdowns, factory shutdowns, and a huge drop in the purchase of consumer metal products. So, everything being supply and demand, those eager buyers from 2020 and 2021 have now turned into eager sellers.
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Rushing to Adjust to Metals Demand

Even China isn’t big enough to argue with data, and metals futures are indicating strong selling pressure. Financial analyst company Refinitiv has aluminum, zinc, steel rebar, and iron ore futures declining through the remainder of 2022. With no real forecast for 2023 as of yet, buyers who attempt to sit on their supplies stand to lose millions.
As previously mentioned, a lot of this has to do with low demand in China itself. The construction sector accounts for some 50% of steel consumption and 30% of aluminum consumption. With new projects floundering and projected growth nearly nonexistent, the “middlemen” are feeling a pretty big pinch. In many cases, steel traders are selling their inventories below their purchasing costs in an attempt to salvage their operations.

Stimulus to the Rescue?

Beijing has not been idle in the face of the country’s economic woes. They recently announced a series of economic stimulus measures aimed at propping up their struggling economy. The measures include cuts to benchmark lending rates and delayed loan repayments, among other things. However, the capital has yet to back off its authoritarian COVID measures.
Most experts agree that China’s commitment to lockdowns and shutdowns is too big an economic disruptor for a simple stimulus to fix.
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