COMMODITIES REVIEW: A divided economy

China’s commodity markets pointed in different directions this week. Weakness in the property sector continued to limit demand for iron ore and steel, while metals needed for batteries and electrification were more strongly influenced by questions over global supply. The contrast matters internationally because China is the world’s largest buyer of many industrial raw materials and dominates several clean-energy supply chains, meaning changes in Chinese demand and production can quickly affect prices elsewhere.

Iron ore remained relatively steady despite signs of weaker Chinese steel demand. The Singapore Exchange benchmark traded at about $95.10 per tonne on August 17, compared with roughly $95–$97 a tonne a week earlier, while the most-traded contract on the Dalian Commodity Exchange had closed at 705.50 RMB (US$105) per tonne on August 12. China produced 76.93 million tonnes of crude steel in July, down 3.6% from a year earlier, while stocks of construction steel have been building. That reflects continued weakness in property construction, traditionally one of China’s biggest sources of steel demand. However, Chinese iron ore imports increased 6% in the first seven months of the year, helping keep international iron ore prices from falling more sharply.

Lithium carbonate prices fell after strong gains earlier in the year. The most-traded contract on the Guangzhou Futures Exchange was around 140,000 RMB (US$20,800) per tonne on August 19, down from 146,200 RMB (US$21,700) on August 12. That was a fall of 6,200 RMB, or 4.2%. Demand from China’s fast-growing energy-storage battery industry remains strong, but expectations that mines in China and overseas will produce more lithium have reduced concerns about shortages. China’s dominant position in battery manufacturing means its lithium prices increasingly influence costs across the global electric vehicle and energy-storage industries.

Copper also eased, but for very different reasons. Three-month copper on the London Metal Exchange traded around $13,987 per tonne on August 18, down $389, or 2.7%, from $14,376 on August 12. Prices had previously surged as available copper stocks in LME warehouses became unusually low. Metal arriving from China helped ease those shortages, illustrating how flows of Chinese copper can now directly influence prices in London and other international markets.

Overall, commodities continue to show a divided Chinese economy: property and construction remain weak, while batteries, electrification and other newer industries are supporting demand for different raw materials. The next important signal will be whether the usual September pickup in construction activity is strong enough to lift demand for steel and iron ore.