China’s Foreign Reserves Decline to $3.12trn
China’s foreign exchange reserves fell to USD 3.12 trillion at the end of September 2023 from USD 3.16 trillion in the prior month. This was the lowest level since October 2022, coming slightly less than market expectations of USD 3.13 trillion as the dollar strengthened against other major currencies.
Economic Support
A mixed picture of China’s economy has been painted by the latest releases of official PMI data. While the manufacturing index increased slightly to 49.7 – its third consecutive rise since the lows of 48.8 seen in May – it’s still falling short of the 50-level mark associated with expansion.
The non-manufacturing series, which had reflected the bulk of the post-reopening recovery, fell further in August. At 51.0, the index was a little lower than the forecast figures of 51.2 but at least remains slightly above contraction territory.
Meanwhile, the Chinese government has moved forward with a series of stimulus measures designed to turn around the flagging economy and its ailing property sector, which accounts for more than a quarter of China’s economic activity.
Included in these measures was the decision to cut down payments and lower rates on existing mortgages. The nationwide minimum down payment will be set at 20% for first-time buyers and 30% for second home buyers. Mortgage rate cuts will be negotiated between banks and customers, and both policies will go into effect on 25 September.
The introduction of these measures came after China’s home sales slumped in August. Sales by the country’s largest developers fell 34% from the previous year, according to China Real Estate Information Corp. It was the deepest drop seen in over a year.
Further stimulus packages could also be introduced, which could boost the need for industrial metals. So far, Beijing has remained reluctant to back major stimulus that might be necessary to put a floor under falling home sales. News of a surge in home sales in two of China’s biggest cities has offered an early sign that government efforts to cushion a record housing slowdown are helping.
Existing home sales for Beijing and Shanghai doubled over the last weekend (2-4 September) from the previous one. Reports of property developer Country Garden avoiding default with last-minute interest payments also restored some additional confidence in China’s property sector.
Metal Demand
China, the world’s biggest consumer of metals, was anticipated to be a bright spot for metals demand after last year’s stringent lockdowns, but so far it has struggled to revive its ailing economy.
An official gauge of manufacturing activity only just returned to growth for the first time in six months in September, ING Commodities Strategist Ewa Manthey said in a note, adding that all things related to the property market continue to struggle.
Renewed concerns over the fate of China Evergrande have surfaced following the detention of its chairman. And there are still questions looming over the economy’s largest developer, Country Garden, which faces $14.9bn in further maturing debt next year, amid plunging unit sales, even as it has so far managed to avoid any default.
Over the last couple of months, the Chinese government has moved forward with a series of stimulus measures designed to turn around the flagging economy and its ailing property sector, which accounts for more than a quarter of China’s economic activity.
Included in these measures was the decision to cut down payments and lower rates on existing mortgages.
However, these measures are yet to have a meaningful impact on industrial metals demand. China’s recovery is still uncertain, and metals are likely to see some continued volatility for a while – at least in the near term.
For the remainder of this year, the key factor for the direction of metals prices will be whether China is able to stabilise its property market.
Until the market sees signs of a sustainable recovery and economic growth in China, the market will struggle to see a long-term move higher for industrial metals.
“We believe the short-term outlook remains bearish for metals demand and we do not foresee a substantial recovery before next year”, Manthey said.
Metals prices should continue to trade under pressure in the fourth quarter with the only upside risk being if Chinese demand recovers faster than anticipated. #China’s Foreign Reserves Decline to $3.12trn Naira Devaluation Deepens Economic Crisis in Nigeria
