Posted on 13 May 2015
A slump in China's property sector that has hit steel consumption may be a warning signal for industrial metal copper, which reacts with a time lag to the construction cycle.
The extent of the impact is not yet clear, but for some, falling steel demand is raising concerns about Chinese copper demand growth this year.
Steel is mainly used in the early stages of construction while copper is largely consumed towards the end of the building process in electrical cabling and plumbing.
Additional copper is also needed for consumer appliances once housing is sold.
"Recent sharp weakening in steel demand ... may be the 'canary in the copper market', Goldman Sachs analyst Max Layton said.
"To the extent steel demand weakness reflects weak new (housing) starts, this may be a prelude to declining copper-intensive construction completions."
China is the largest global consumer of both steel and copper, accounting for nearly half of the total for each metal.
The Chinese property sector is widely regarded as one of the biggest threats to overall economic growth.
Average new house prices fell 6.1 per cent in March, the seventh consecutive monthly decline, while growth in China's real estate investment in the first quarter slowed to 8.5 per cent, the lowest rate since 2009.
That slump had a clear impact on steel demand.
China's apparent crude steel consumption fell for the first time in three decades in 2014 and continued the decline this year, sliding 6.2 per cent in the first quarter, the China Iron & Steel Association (CISA) said.
COMPLETIONS EXPECTED TO WEAKEN
Both steel and copper prices have fallen in the past 12 months -- the steel rebar contract on the Shanghai Futures Exchange is down 26 per cent, while benchmark copper on the London Metal Exchange has shed 7 per cent.
"The degree of weakness is steel is unique and is unlikely to mean the same weakness for copper," said Xiao Fu, head of commodity markets strategy at Bank of China International in London.
She said Chinese property sales have tended to lead steel consumption by two to three months while this in turn has led copper demand by a further two to three months.
