Waking from a nap at his desk, Xiao, a metal dealer from Wuhan in central China, displays on how, on the finish of one of many best booms in latest financial historical past, he’s a fortunate survivor.
About half of his opponents on this gritty workplace park, constructed close to the positioning of China’s first iron works, have gone bust through the nation’s three-year-long property disaster. The park itself is overshadowed by the large concrete skeleton of an unfinished actual property undertaking.
“The decline was quite severe in the first half of [last] year,” says Xiao, referring to the worth of rebar, a metal product utilized in building to strengthen concrete. A authorities pivot in direction of financial stimulus which started within the autumn has but to reignite actual property building, he says. “Demand is still poor.”
Wuhan is the birthplace of China’s metal business, which rode the nation’s meteoric growth in latest a long time to turn into the most important on the earth.
The dimensions of Chinese language urge for food for metal has been epic. As China constructed up its cities, in line with authorities information, the nation consumed twice as a lot of the metallic within the twenty years from 2000 to 2020 because the US did throughout all the twentieth century.
This huge industrialisation and urbanisation, at a tempo the world had by no means seen earlier than, drove an enormous commodities supercycle. It despatched costs of uncooked supplies like iron ore and steelmaking coal skyrocketing, and profoundly reshaped the worldwide mining and vitality industries.
However that supercycle, which began to wane through the Covid-19 pandemic, has now lastly come to an finish. Final 12 months China’s metal manufacturing fell to a four-year low, and is predicted to shrink once more this 12 months. The nation’s consumption of iron ore, a key ingredient for making metal and iron, declined final 12 months after peaking in 2023, in line with Macquarie. There are even some indications that Chinese language demand for oil is beginning to peak — effectively earlier than most forecasts stated it could.
Steele Li, vice-chair of mining firm CMOC, says that the actual property increase that drove the Chinese language financial system has ended. “That engine is over, and I don’t think it will come back, ever. So China’s economy needs to find a new engine, with similar size,” says Li.
Whereas Chinese language demand has been limping alongside for a number of years, particularly for the reason that pandemic, some had hoped that the federal government stimulus measures would result in a brand new spurt. However the sources business has now given up hope of one other building increase, like those that accompanied earlier stimulus packages.
Specialists quibble concerning the actual timing of the height in Chinese language demand. However as Tom Worth, head of commodities technique at Panmure Liberum, places it: “The China commodities supercycle is definitely over.”
For the nations and firms that rode the wave of the Chinese language supercycle for the previous 20 years, it’s a profound and at occasions painful shift.
“Is it the end of an era? It does seem like it,” displays James Campbell, metal analyst at CRU, a commodity information agency. Even with the latest stimulus measures, he says, “there is not really a way to supercharge steel demand further”.
Throughout the business, some executives are hopeful that the top of the China increase is coinciding with the beginning of a brand new cycle. Large investments in clear vitality, in China and world wide, have laid the inspiration for one more, very completely different sort of commodities increase.
This subsequent section would require plenty of copper for constructing out electrical energy grids, information centres, and renewable energy — in addition to metals reminiscent of lithium, cobalt and nickel for electrical automobile batteries.
The tip of the Chinese language supercycle
That is the primary of a two-part collection on how Chinese language demand for commodities, which reworked the mining and vitality industries for twenty years, is now starting to weaken, partly due to the property disaster
Half two, tomorrow: Has China already hit peak oil?
“We are between supercycles,” says Peter Toth, chief technique officer at Newmont, a US-listed gold miner, who beforehand labored at BHP and Rio Tinto. “We are coming out of the China supercycle and we are still on the edge of the next supercycle, which will be driven by electrification, the energy transition and artificial intelligence.”
Nevertheless, if there’s a new increase in commodities, it’ll happen in a really completely different world financial system — one that’s being formed by competitors between Beijing and Washington.
The China cycle was in some ways the apogee of the period of globalisation: Beijing was capable of entry open markets to feed its financial system with iron ore from Brazil, copper from DRC and oil from Saudi Arabia. The demand within the subsequent cycle, nonetheless, is extra unfold out geographically, with dozens of nations vying for the uncooked supplies to construct out their very own renewable vitality and electrical energy infrastructure.
That dynamic means competitors over scarce sources will play a a lot better position. Already western nations are racing to construct their very own provide chains, outdoors of Chinese language management, for essential supplies reminiscent of cobalt, lithium and copper.
Underneath the Biden administration, the US authorities has began to intervene in sure mining offers in Africa, in an effort to steer management of essential commodities in direction of US-allied firms. The political tensions across the new increase in commodities may turn into even sharper in Donald Trump’s new time period.
“The biggest challenge in the future is the geopolitics,” says Li, of CMOC. “The world is becoming more divided . . . That’s the fundamental issue.”
Again when the final supercycle began, round 2000, the size of the demand caught everybody unexpectedly. “China came along and completely changed everything,” recollects Toth, the mining govt, who joined BHP in 1994.
Mining giants BHP and Rio Tinto every reported greater than $100bn in working earnings from iron ore through the 2000-20 interval. Some within the mining business joke that they had been scooping cash out of the bottom.
However now the structural and demographic elements that underpinned that increase — China’s fast urbanisation and industrialisation — have turn into a lot much less highly effective. On a per capita foundation, China has already handed the extent of annual metal consumption of the US and different developed nations. The huge migration to cities, wherein half a billion individuals moved from rural to city settings through the increase years, is beginning to decelerate.
“Peak steel in China has been reached: structurally there is no realistic growth [in steel demand],” says Marcus Garvey, head of commodities technique at Macquarie Group. Going ahead, he expects China’s metal manufacturing will “cycle around” present ranges of 1bn tonnes yearly, with exports serving to to compensate for slack home demand.
China’s earlier rounds of financial stimulus — together with these in 2009, 2013 and 2016 — pumped cash into heavy business and building, bolstering the metal business repeatedly.
However this time is completely different. Beginning in late September, Beijing introduced a collection of stimulus measures aimed toward serving to native governments scale back their debt, rescuing the property market, and loosening financial coverage. Whereas a few of these are directed at infrastructure or stimulating consumption to stave off an financial downturn, none of them can have the identical large influence on metal. Certainly, most economists argue China must rebalance its financial system in direction of family consumption and providers. One other steel-heavy building stimulus is the precise reverse of what’s wanted at this level in its growth, they are saying.
“There have been a lot of stimulus packages over the years that have kept steel demand going,” says Campbell, the CRU analyst. “But what we see now is that they have reached that limit.”
Many Chinese language metal mills have turned to exports to attempt to compensate for weaker demand at residence. Final 12 months China’s metal exports reached 111mn tonnes, a nine-year excessive. However mounting commerce tensions, together with with the US, imply there may be little room to extend exports additional.
Others have shifted to supply extra flat metal merchandise, that are used within the automotive and manufacturing sectors, and fewer of the lengthy metal merchandise utilized in building. Manufacturing, together with automobiles, has grown to account for almost half of Chinese language metal demand.
“This year, the manufacturing sector will remain the major driver to prop up China’s overall steel demand,” says Vivian Yang, head of editorial at MySteel, a Shanghai-based commodity information supplier. “But still the property sector will be a major drag.” She forecasts China’s metal consumption will fall 2-3 per cent this 12 months, after dropping 3 per cent final 12 months.
Some metal mills have needed to shut their doorways fully — and about 50 per cent of Chinese language metal mills are shedding cash, in line with a MySteel survey this month.
Within the city of Ezhou, close to Wuhan, a big privately owned steelmaker, Hongtai Metal, stopped manufacturing final 12 months. When the FT tried to go to the plant, a receptionist stated “there are no plans to resume production”.
The corporate’s slogan, written in enormous letters on prime of its workplace block, nonetheless harks again to happier occasions — Gang De Shi Li, Tie De Xin Yu, which means “Steel-like Strength, Iron-clad Integrity”.
For the worldwide metal business, the remainder of the world isn’t capable of decide up the slack left by the decline in China. Though demand is rising in India, the world’s second-largest metal producer, its annual home output continues to be simply one-eighth of China’s.
“The world has got to get used to slower growth,” says Campbell, the analyst at CRU. He expects world metal demand progress to gradual to 0.6 per cent every year between now and 2050, in contrast with a median of two per cent annual progress over the previous 20 years.
Iron ore costs, which have been trending down, are anticipated to maintain falling. Macquarie’s Garvey expects iron ore to fall to a median of $80 per tonne subsequent 12 months, from round $140 per tonne at the beginning of 2024.
There’s a future for iron ore, however it’ll look completely different: demand is predicted to shift to the upper grades of iron ore utilized in steelmaking processes which have considerably decrease carbon emissions. Throughout the Chinese language metal business, the downturn may lastly present the impetus to cut back the overcapacity that has plagued the business for many years, and pace up the retirement of older, extra polluting mills.
“Now there will be a process of supply and demand equilibrium, finding a new level,” says Toth, the mining govt at Newmont. “The low-grade seaborne [iron ore] will come out of the market, and you’ll be left with the high-grade.”
At the same time as metal mills battle, there are indicators of hope for these within the sources sector extra typically — notably in terms of copper, the metallic that’s central to the vitality transition.
Close to Wuhan, within the city of Huangshi, which accurately means “yellow stone”, producers of copper merchandise are busier than ever.
Huangshi claims a protracted pedigree in copper manufacturing — with proof of mining and smelting relationship again to the Bronze Age — and is residence to a number of main smelters in the present day. On a latest go to, a warehouse belonging to Youhe Copper was busy with vehicles loading enormous coils of copper sheet, coming and going late into the night. “Business is good this year,” says a workers member.
Outdoors China, the mining firms that made their fortunes promoting supplies into the Chinese language actual property increase have quickly been reorientating themselves in direction of what they hope to be a brand new copper increase. Final 12 months BHP launched a £39bn bid for Anglo American, primarily to get entry to its copper belongings. And Rio Tinto splashed out almost $7bn to scoop up a lithium firm, Arcadium, to faucet into demand for electrical automobile batteries.
Because the vitality transition requires extra electrical cables, extra electrical autos, and extra photo voltaic and wind farms, the ensuing surge in demand can be enormous. Copper demand is predicted to extend 50 per cent by 2040, and lithium demand is predicted to surge seven-fold by that point, in line with the Worldwide Vitality Company Internet Zero Situation.
“The only reason these guys are coming up with these strategies is because they know China’s iron ore demand has peaked, and the sector that the iron and steel went into — property and real estate — has also peaked,” says Worth of Panmure Liberum.
The brand new cycle doesn’t revolve round China, however the nation continues to be one of many driving forces. China stays the world’s largest purchaser of many uncooked supplies — and would be the world’s largest metal producer for many years to come back. Its dominance in battery supplies is even better: it controls two-thirds of world lithium and cobalt processing.
The essential minerals wanted for the vitality transition are sometimes extra area of interest than the commodities that drove the actual property increase, and decrease worth when it comes to market measurement. And the commerce conflict between the US and China is encompassing a widening circle of area of interest metals. After the US launched export controls aimed on the Chinese language semiconductor business, China lately restricted its exports of gallium and germanium — that are utilized in sure semiconductor and defence functions.
Some executives worry that the competitors over sources may escalate in a harmful method.
“I personally think the next war is going to be a war of metals,” says Hugo Schumann, a mining entrepreneur and chief govt of EverMetal, a Denver-based recycling funding agency. “China has so much power, because they have consolidated all the downstream production of these metals.”
Even when few would go that far, there’s a rising recognition that competitors over sources will form the brand new period for commodities.
“There is this collision between the upcoming critical minerals boom and heightened geopolitical tension in almost every part of the world,” says Thijs Van de Graaf, vitality fellow on the Brussels Institute for Geopolitics.
Van de Graaf provides that Trump’s latest feedback on Greenland and Canada have large implications for essential minerals. “Under Trump, I expect critical raw materials to become part of a more transactional type of geopolitics.”
Whereas mining firms see grounds for optimism, many executives are a contact nostalgic for the China increase years.
“At its height, the China supercycle in iron ore was something I’ve never seen,” says Toth. “And will never see again in my career.”
Knowledge visualisation by Steven Bernard
