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Informist, Tuesday, Oct. 22, 2024

NEW DELHI — The long-term effects of China's economic stimulus measures are unclear as they seem more focused on expanding production capacity than improving demand, Commerzbank said. "It therefore remains to be seen how long the positive effect seen in the September figures will last," the Frankfurt-based bank said in a research report. 

The housing market remains weak and is in crisis as housing starts fell again by 20% from a year ago, while property sales in September were around 11% lower from a year earlier, the report said. 

However, the daily property sales suggest that property sales improved towards the end of the month and could fall less in October. "This would be a long-awaited glimmer of hope for the Chinese property market - although we are still talking about year-on-year declines. Just not quite as severe," the report said. 

The slowdown in the housing market remains a drag on steel and copper demand. Further, the emerging recovery in property sales does not necessarily translate into a resurgence in housing starts, the report said. 

A weak housing market is likely to drag down copper demand as wiring tends to be installed towards the end of the construction phase. However, infrastructure and industrial demand for copper remains robust as China invests heavily in power generation and expansion of power grids. 

In addition, infrastructure investment continued to grow, although the growth rate slowed to 2% in September, the report said. "It is encouraging, however, that investment in railways and electricity grids in particular continues to grow strongly," the report said. China's industrial production rose by 5.4% on year in September, higher than last month and analysts' expectations. 

Infrastructure and manufacturing sectors are signalling positive cues. "Overall infrastructure investment was up just 2% year-on-year, but railway infrastructure investment rose by more than 20% in September," the report said. Industrial demand for steel rose by an average of 6.7% in September, the highest since April. 

However, the renewed increase in iron ore production is likely to weigh on prices. China mined 82.7 million tonnes of iron ore in September, up from 73 million tonnes in August. At the same time, iron ore demand is expected to remain low, the report said. 

Though the growth picture is mixed, the first effects of the recently announced stimulus measures can already be seen in some sectors, the report said. "Investment in areas that the government can control well, such as railway construction and power generation, continued to grow strongly," the report said. Also, sectors with a focus on industrial policy such as renewables and e-mobility registered growth, it added. 

However, the domestic demand for industrial products is likely to remain weak and export opportunities tend to be more complicated, the report said. "For the time being, the stimulus measures continue to give the impression that the focus is once again on expanding production capacity rather than improving demand," the report said.   End

Reported by Afra Abubacker

Edited by Saji George Titus

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