China’s reopening should underpin commodity demand acceleration – Barclays

China’s reopening and ‘whatever it takes’ approach to the property sector are tectonic shifts that should underpin an acceleration in commodity demand through 2023, say Barclays Equity Research analysts.

2023 is set to be another strong year for miners, European metals and mining analysts Amos Fletcher, Ian Rossouw and Tom Zhang state.

This follows China’s commodity demand momentum being under downward pressure throughout 2022.

The ‘whatever it takes’ approach to the real-estate sector is seen as being central to commodity demand.

In particular, the analysts see the move to relax the ‘three red lines’ policy as well as the ‘16-point comprehensive plan’ as being supportive of recovery. It was the ‘three red lines’ policy that triggered the real-estate meltdown of the last two years.

With China now accounting for more than half of key commodity demand, the analysts see the impact on mining of a US/European recession as being lowered. The impact of Europe on key commodity demand is put at 15% and that of the US is calculated to be 8% at most.

“Our conclusion is that with China set to deliver a positive economic impulse into 2023, it should underpin powerful relative outperformance from the miners even during a western world recession,” they state.

China’s real-estate rescue plan of November, they point out, has already helped to improve homebuyer confidence, with the onshore bond market starting to reflect the improving policy backdrop. Household savings are also elevated after two years of limited consumption, implying significant pent-up demand potential.

Iron-ore, they point out, has enjoyed a powerful bounce since November amid imported iron-ore inventories at steel mills being at multi-year lows.

A plausible case is seen for the iron-ore price reaching $150/t before falling back and for iron-ore to then average a 15%-higher price of $115/t in 2023.