China’s demand for major commodities has been growing at robust rates, defying the expectations of many analysts. Goldman Sachs, in a recent note, highlighted that China’s appetite for copper, iron ore, and oil has exceeded their full-year expectations. This surge in demand has been attributed to the notable growth in China’s green economy, grid and property completions. While the property sector is still struggling, the green economy has shown significant strength, resulting in a surge in demand for metals like copper, which are crucial for the green transition.
China has made remarkable progress in developing its green economy. The country’s onshore solar installations in 2023 have already surpassed the total installations of all previous years combined. With an operating solar capacity of 228 GW, more than the rest of the world combined, China leads the way in renewable energy adoption. Additionally, China is on track to double its wind and solar capacity five years ahead of its 2030 target.
The demand for copper, a key metal in the green sector, has seen a substantial increase. According to data from Goldman Sachs, China’s green copper demand rose by a staggering 71% in July compared to the previous year. Specifically, the demand for copper related to solar installations has surged by 130% year-to-date. This strong growth in the green economy’s metal demand highlights China’s commitment to sustainable development and clean energy.
China’s manufacturing sector has shown signs of recovery, which has boosted the demand for base metals like aluminum. The improvement in manufacturing trends during Q3 has coincided with stronger import levels of base metals. In August, China’s industrial production grew by 4.5% compared to the same period last year, surpassing expectations. Particularly, the value added of equipment manufacturing grew by 5.4% year-on-year.
According to Goldman Sachs, these positive manufacturing indicators suggest that the demand for onshore aluminum and copper will continue to grow into the next year. The current drivers of demand are expected to remain stable, providing a supportive underpinning for these metals.
China’s oil demand has witnessed a rapid recovery, primarily driven by the rebound of oil-intensive services sectors, such as transportation. The record internal mobility, indicated by robust congestion and domestic flight data, has supported China’s demand for oil. However, Goldman Sachs analysts caution that oil demand growth is likely to decelerate significantly in the coming year.
Although there is a surge in commodities demand, China’s macroeconomic growth story appears faltering. Despite this, commodities have responded positively to the People’s Bank of China’s monetary expansion, contrasting with the performance of the Chinese stock market. Analysts suggest that traders in the Chinese market perceive commodities as a more attractive bet on the marginal improvement in the Chinese real economy.
China’s robust demand for major commodities, including copper, iron ore, and oil, has defied expectations amidst a challenging macroeconomic environment. The remarkable growth of China’s green economy, along with the recovery in the manufacturing sector, has been key drivers behind the surge in demand for metals. Additionally, the rebound in oil-intensive services sectors has fueled the demand for oil. While the macroeconomic growth story might remain uncertain, commodities continue to be seen as a promising investment, reflecting the potential for a marginal improvement in China’s real economy. As China maintains its momentum in the transition to a greener future, the demand for commodities is expected to remain strong, signaling a potential sign of economic recovery.
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