Modest economic and fiscal stimuli for iron ore, steel, oil markets
Support for clean energy sectors like solar PV, electric vehicles
Oversupply impacts solar product, battery metal prices
China’s top political brass emphasized the need for energy transition at its key annual gathering March 5 but failed to announce strong stimuli for conventional commodity markets, notably steel, iron ore and oil.
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China’s Premier Li Qiang delivered his first work report at this year’s National People’s Congress. The congress and the Chinese People’s Political Consultative Conference are jointly known as “Two Sessions” or “lianghui.” Two Sessions outline the government’s agendas for the year and set the stage for some of the country’s most important economic and political decisions.
Li set a moderate gross domestic product growth target of “around 5%” for 2024, at par with last year’s target. The fiscal and monetary stimuli in his report were considered modest by market participants and not enough to excite steel and oil markets.
Nevertheless, Li put the “development of new productive forces” as the government’s top priority in 2024, which means a systematic shift toward high-end and clean manufacturing industries. He also spoke of the need to accelerate energy transition and encouraged traditional industries to improve productivity to stay competitive.
Infrastructure
** Solar PV: China added 216 GW of solar photovoltaic generation capacity in 2023, accounting for 58% of total global additions, official data showed. In 2024, the growth in solar PV generation capacity is expected to be on par with last year’s level, following the government’s call for accelerated energy transition. Nevertheless, the expansion of upstream manufacturing capacities, like silicon wafers and modules, will slow down amid severe oversupply.
** Electric vehicles: The government’s work report repeatedly highlighted the importance of EVs in present-day China’s economy and proposed supportive measures, which would be key drivers of China’s aluminum and copper consumption in 2024, at a time when the construction sector, traditionally a strong aluminum and copper consumer, experiences strong headwinds.
** Steel: Construction of real estate properties will slow down further in 2024, resulting in lower steel consumption of 268 million mt, down by 4% year on year. Steel consumption from the government-backed infrastructure projects will continue to grow but at a slower pace due to the local governments’ deleveraging, following the work report’s requirements to address increasing debts.
** Oil: The work report reaffirmed that energy security should not be compromised in energy transition. Hence, upstream companies will continue improving their technologies to boost domestic crude outputs. S&P Global Commodity Insights expects China’s crude production to reach 4.3 million b/d in 2024, up by 2.4% on the year. Meanwhile, to enhance productivity, the refining sector will continue consolidating scattered, small and outdated refineries into integrated mega-complexes.
** Gas: Securing natural gas and LNG supplies are essential to ensure energy security, and substitute coal to provide base-load power supplies to address intermittency brought by increasing renewables. Notably, receiving capacities of China’s LNG terminals will increase by 52% in 2024 to reach 176 million mt/year, state energy major CNPC’s forecasts showed.
Trade Flows
** Solar PV products: In 2023, China’s silicon wafer export volume increased by 45.6% to 7.8 billion wafers, and China’s solar module export volume increased by 36.6% to 211 GW, official data showed. In 2024, export volumes for solar PV products are expected to grow steadily but see greater market diversification, reducing dependency on the EU amid trade friction.
** EVs and battery metals: China accounted for more than 60% of the world’s total electric vehicle production and sales in 2023, the work report highlighted. EV production, domestic sales and exports are expected to grow steadily. The growth in battery metal demand may slow down as production keeps increasing but downstream consumers like battery and vehicle producers need to lower their stocks, market sources said.
** Aluminum: China’s aluminum demand from the EV, PV and lithium battery sectors is expected to reach 7.34 million mt in 2024, up 26% on the year, while the construction sector’s aluminum demand is set to decrease by 2.5% to 15.2 million mt, according to state-run research agency Antaike.
** Steel: China’s domestic steel demand in 2024 may fall below 2023 levels due to weak stimuli, market participants said. S&P Global estimated China’s crude steel output at 1.015 billion mt for 2024, down 0.5% on the year, while steel exports may drop to around 82 million mt.
**Oil: China’s oil demand is capped by the government’s call to speed up energy transition, while the real estate sector’s crisis also impacts the gasoil market. S&P Global expects China’s oil demand growth in 2024 at 510,000 b/d, or 3.1%, down from 6.6% in 2023, while gasoil demand growth will be at 1.8% year on year.
**Gas: China’s total natural gas imports are expected to see a year-on-year increase of 8.2% to 179.1 Bcm in 2024, with LNG imports rising 8.1% year on year to 77.11 million mt and pipeline gas imports increasing 8.2% year on year to 72.6 Bcm, CNPC’s forecasts showed.
Prices
** Solar PV: From January to December 2023, China’s silicon wafer prices dropped by 50%, from 52 cents/wafer to 26 cents/wafer, while China’s solar module prices dropped by 43% during the same period, from 23 cents/watt to 13 cents/watt, official data showed. Manufacturers need to address the severe oversupplies along the solar PV supply chain to stabilize market prices, market sources said.
** Battery metals: Lithium markets are expected to remain oversupplied in 2024, keeping spot prices subdued, according to S&P Global. Platts assessed battery-grade lithium carbonate at Yuan 95,000/mt ($13,196/mt) on a DDP China basis Dec. 29, 2023, down 81.4% from Jan. 3, 2023, S&P Global data showed.
** Steel: Platts-assessed Chinese domestic rebar prices stood at Yuan 3,760/mt on March 4, down from Yuan 3,959/mt at the end of 2023 and from Yuan 4,320/mt a year ago, S&P Global data showed. Over 50% of rebar is consumed by the real estate property sector.
** Iron ore: Softened steel production and subdued steel demand outlook have driven iron ore prices downward since the start of 2024, with the 62% Fe Iron Ore Index falling to $117.75/mt on March 4, down from $143.95/mt on Jan. 3, Platts data from S&P Global showed.
** Gas: China’s average import cost of LNG, comprising both term and spot cargoes, was estimated to be around $12.19/MMBtu in 2023, down by 23.4% year on year, S&P Global data showed. CNPC expects LNG spot prices to be around $12-$13/MMBtu in Northeast Asia in 2024.
