A new report by market analyst Wood Mackenzie argues that steel, aluminium, and copper stand to benefit most from an uptick in China's gross domestic product growth this year.
WoodMac suggests that if China's economy grows at the expected base case of 5.5% in 2023, the recovery will remain domestically contained with minimal global impact.
However, due to the industry-intensive nature of the high-case scenario laid out in the report, positive ripple effects will be felt across the global economy. The high case scenario of 7% will also see exporters of capital equipment, resources and materials to China witness some considerable upside.
According to Trade Economics, the Chinese economy grew 3% last year, significantly missing the central government's 2022 target of 5.5%.
China is the largest importer of almost every commodity in the global markets. In its report released on Mar. 23 entitled 'The Great Reopening,' WoodMac looks at the expected impact of the Asian powerhouse's re-emergence from government-orchestrated Covid restrictions.
Global metal markets are inextricably bound to China's economy. "In our high-growth scenario, where growth is driven by more intensive industrial production and an outperforming property sector, the impact is greatest among the metal market's heavyweights - steel, aluminium and copper," WoodMac's research director for the global mining team, Nick Pickens, said in a statement.
According to WoodMac data, China accounts for almost 900 million tonnes of finished steel consumption, just over half the global total.
Nearly two-thirds go into the construction sector. "Our base-case scenario already has Chinese steel demand recovering through the second half of the year, partly supported by an uptick in the property sector," WoodMac said.
"However, our high-growth scenario boosts consumption by 25 million tonnes."
In its base case, additional supply over time of steel's critical raw materials - iron ore and coking coal - leads to a softening of prices. "In our China high-growth case, however, export markets would be unable to adequately respond to a near-term surge in Chinese demand, sustaining higher prices for longer."
WoodMac suggests the key barometer for copper is Chinese property completions rather than building starts. Consumption, generally in the form of wire, is skewed towards the later stages of the construction cycle.
Consequently, more supportive housing policies in China this year will spill into higher physical demand by the construction industry for 2024, WoodMac forecasts.
A further impact of its high-growth scenario is a boost in demand for copper for appliances and machinery, though to a lesser extent than in construction.
"Combined, we estimate an additional 215,000 tonnes of copper demand, or 1.6% of total consumption, over the next two years," WoodMac said.
China's construction sector drives about a quarter of global aluminium consumption. Therefore, a stronger property market recovery would support a healthy increase in aluminium demand in 2023 and 2024, adding over 500,000 tonnes, or 1.3%, to primary consumption.
WoodMac's analysts expect more robust physical demand should underpin a recovery in metals prices, but levels also hinge on sentiment. Positive signals often trigger a flow of speculative money into the sector, turbocharging prices in the short term.
WoodMac flagged a further twist for metals. Higher energy demand could repeat the power-related supply disruptions experienced across China and Europe over the past two years. These led to production curtailments in zinc, primary aluminium, steel and nickel, which could hold metal price upside.
The report concludes that energy and natural resource markets remain delicately balanced, and while China's leadership remains cautious on monetary policy and fiscal policy, sharper growth cannot be discounted. China's reopening could once again turn up the heat on prices across the energy and natural resources spectrum.