The Chinese government recently started loosening restrictions imposed when coronavirus infections were high. The relaxing of these restrictions, which had been choking the country’s economy, allowed industrial commodities to rise.
The virus is now considered to be under control in Beijing, with officials in Shanghai outlining their plan to revive the municipality after a two-month lockdown in the hopes that the virus will soon be under control in the region as well. The revival measures include making the purchase of cars cheaper, accelerating approvals for properties, and allowing the restart of manufacturing and all other metal-intensive areas, which were significantly impacted by the coronavirus pandemic.
Businesses in Shanghai have also been informed that they can resume their operations. However, most residents are yet to be told when they can leave their house compounds, with most of the public transport still being suspended. Additionally, private cars aren’t allowed to be on the road if they haven’t received prior approval.
The Purchasing Managers’ Index for the country is expected to remain in contraction while also recouping some of the losses it recorded in April following an improvement in output of steel and oil refining.
On a broader scale, the growth outlook of the Asian nation has reduced amid a coronavirus-zero policy, which may negatively affect it as the Chinese government increases stimulus to get its economy back on track.
Natixis senior economist Gary Ng stated that the most important thing to focus on was whether the country could keep on its reopening path, as investment and consumption wouldn’t rebound greatly if corporations and households continued to face the uncertainties that come with lockdowns. He added that in order to see a significant change in the zero-COVID policy in China, the world would need to wait until this year ended.
Capital Economics expects that among individual commodities, the demand for steel will likely remain low as policymakers continue discouraging housing speculation. The research firm predicts that by the year’s end, hot-rolled coil will have declined by 10% to reach 4,200 yuan ($629.48) per ton.
The demand prospects for copper also remain weak. However, the recorded extra spending on the power grid, which is the biggest consumer of the red metal, may improve its prospects and the earnings of mining companies such as Freeport-McMoRan Inc. (NYSE: FCX) over the medium to long term.
It is expected that the country will also take steps to clear high inventories of fuel that have accumulated during the long anti-coronavirus lockdowns. It may do so by issuing more export quotas, which will increase competition between refiners in the region.
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