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 biggest 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 in the course of the nation’s three-year-long property disaster. The park itself is overshadowed by the large concrete skeleton of an unfinished actual property challenge.
“The decline was fairly extreme within the first half of [last] yr,” says Xiao, referring to the worth of rebar, a metal product utilized in building to bolster concrete. A authorities pivot in the direction of financial stimulus which started within the autumn has but to reignite actual property building, he says. “Demand remains to be poor.”
Wuhan is the birthplace of China’s metal trade, which rode the nation’s meteoric growth in latest many years to change into the most important on the earth.
The size 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 steel within the twenty years from 2000 to 2020 because the US did throughout your entire 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 power industries.
However that supercycle, which began to wane in the course of the Covid-19 pandemic, has now lastly come to an finish. Final yr China’s metal manufacturing fell to a four-year low, and is predicted to shrink once more this yr. The nation’s consumption of iron ore, a key ingredient for making metal and iron, declined final yr after peaking in 2023, in line with Macquarie. There are even some indications that Chinese language demand for oil is beginning to peak — properly earlier than most forecasts mentioned it will.
Steele Li, vice-chair of mining firm CMOC, says that the actual property increase that drove the Chinese language economic system has ended. “That engine is over, and I don’t assume it’ll come again, ever. So China’s economic system must discover a new engine, with comparable dimension,” 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 assets trade has now given up hope of one other building increase, like those that accompanied earlier stimulus packages.
Specialists quibble concerning the precise 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 unquestionably 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 top of an period? It does look like it,” displays James Campbell, metal analyst at CRU, a commodity information agency. Even with the latest stimulus measures, he says, “there may be probably not a technique to supercharge metal demand additional”.
Throughout the trade, 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 power, in China and all over the world, have laid the muse for an additional, very completely different form of commodities increase.
This subsequent section would require a number of copper for constructing out electrical energy grids, information centres, and renewable energy — in addition to metals comparable to lithium, cobalt and nickel for electrical automobile batteries.
The top 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 power 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’re between supercycles,” says Peter Toth, chief technique officer at Newmont, a US-listed gold miner, who beforehand labored at BHP and Rio Tinto. “We’re popping out of the China supercycle and we’re nonetheless on the sting of the following supercycle, which can be pushed by electrification, the power transition and synthetic intelligence.”
Nonetheless, if there’s a new increase in commodities, it’ll happen in a really completely different world economic 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 in a position to entry open markets to feed its economic system with iron ore from Brazil, copper from DRC and oil from Saudi Arabia. The demand within the subsequent cycle, nevertheless, is extra unfold out geographically, with dozens of nations vying for the uncooked supplies to construct out their very own renewable power and electrical energy infrastructure.
That dynamic means competitors over scarce assets will play a a lot larger function. Already western nations are racing to construct their very own provide chains, outdoors of Chinese language management, for vital supplies comparable to cobalt, lithium and copper.
Beneath 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 the direction of US-allied firms. The political tensions across the new increase in commodities may change into even sharper in Donald Trump’s new time period.
“The largest problem sooner or later is the geopolitics,” says Li, of CMOC. “The world is changing into extra divided . . . That’s the basic challenge.”
Again when the final supercycle began, round 2000, the size of the demand caught everybody unexpectedly. “China got here alongside and fully modified all the pieces,” recollects Toth, the mining government, who joined BHP in 1994.
Mining giants BHP and Rio Tinto every reported greater than $100bn in working earnings from iron ore in the course of the 2000-20 interval. Some within the mining trade joke that they have been scooping cash out of the bottom.
However now the structural and demographic elements that underpinned that increase — China’s speedy urbanisation and industrialisation — have change 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 folks moved from rural to city settings in the course of the increase years, is beginning to decelerate.
“Peak metal in China has been reached: structurally there isn’t any reasonable development [in steel demand],” says Marcus Garvey, head of commodities technique at Macquarie Group. Going ahead, he expects China’s metal manufacturing will “cycle round” 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 trade and building, bolstering the metal trade time and again.
However this time is completely different. Beginning in late September, Beijing introduced a collection of stimulus measures geared 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 affect on metal. Certainly, most economists argue China must rebalance its economic system in the 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 number of stimulus packages through the years which have saved metal demand going,” says Campbell, the CRU analyst. “However what we see now could be that they’ve reached that restrict.”
Many Chinese language metal mills have turned to exports to attempt to compensate for weaker demand at dwelling. Final yr 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 vehicles, has grown to account for almost half of Chinese language metal demand.
“This yr, the manufacturing sector will stay the most important driver to prop up China’s general metal demand,” says Vivian Yang, head of editorial at MySteel, a Shanghai-based commodity information supplier. “However nonetheless the property sector can be a significant drag.” She forecasts China’s metal consumption will fall 2-3 per cent this yr, after dropping 3 per cent final yr.
Some metal mills have needed to shut their doorways completely — and about 50 per cent of Chinese language metal mills are dropping 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 yr. When the FT tried to go to the plant, a receptionist mentioned “there are not any plans to renew manufacturing”.
The corporate’s slogan, written in large letters on prime of its workplace block, nonetheless harks again to happier occasions — Gang De Shi Li, Tie De Xin Yu, which means “Metal-like Energy, Iron-clad Integrity”.
For the worldwide metal trade, the remainder of the world shouldn’t be in a position to choose 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 remains to be simply one-eighth of China’s.
“The world has obtained to get used to slower development,” says Campbell, the analyst at CRU. He expects world metal demand development to gradual to 0.6 per cent each year between now and 2050, in contrast with a median of two per cent annual development 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 yr, from round $140 per tonne firstly 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 trade, the downturn may lastly present the impetus to cut back the overcapacity that has plagued the trade for many years, and velocity up the retirement of older, extra polluting mills.
“Now there can be a strategy of provide and demand equilibrium, discovering a brand new stage,” says Toth, the mining government at Newmont. “The low-grade seaborne [iron ore] will come out of the market, and also you’ll be left with the high-grade.”
Whilst metal mills battle, there are indicators of hope for these within the assets sector extra typically — significantly in terms of copper, the steel that’s central to the power transition.
Close to Wuhan, within the city of Huangshi, which accurately means “yellow stone”, producers of copper merchandise are busier than ever.
Huangshi claims an extended pedigree in copper manufacturing — with proof of mining and smelting courting again to the Bronze Age — and is dwelling to a number of main smelters at the moment. On a latest go to, a warehouse belonging to Youhe Copper was busy with vans loading large coils of copper sheet, coming and going late into the night. “Enterprise is sweet this yr,” says a employees 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 the direction of what they hope to be a brand new copper increase. Final yr 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 power transition requires extra electrical cables, extra electrical automobiles, and extra photo voltaic and wind farms, the ensuing surge in demand can be large. 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 Power Company Web Zero Situation.
“The one cause these guys are developing with these methods is as a result of they know China’s iron ore demand has peaked, and the sector that the iron and metal went into — property and actual property — has additionally peaked,” says Worth of Panmure Liberum.
The brand new cycle doesn’t revolve round China, however the nation remains to be one of many driving forces. China stays the world’s largest purchaser of many uncooked supplies — and would be the world’s greatest metal producer for many years to come back. Its dominance in battery supplies is even larger: it controls two-thirds of worldwide lithium and cobalt processing.
The vital minerals wanted for the power transition are sometimes extra area of interest than the commodities that drove the actual property increase, and decrease worth by way of market dimension. And the commerce warfare 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 trade, China just lately restricted its exports of gallium and germanium — that are utilized in sure semiconductor and defence purposes.
Some executives concern that the competitors over assets may escalate in a harmful method.
“I personally assume the following warfare goes to be a warfare of metals,” says Hugo Schumann, a mining entrepreneur and chief government of EverMetal, a Denver-based recycling funding agency. “China has a lot energy, as a result of they’ve consolidated all of the downstream manufacturing of those metals.”
Even when few would go that far, there’s a rising recognition that competitors over assets will form the brand new period for commodities.
“There may be this collision between the upcoming vital minerals increase and heightened geopolitical stress in nearly each a part of the world,” says Thijs Van de Graaf, power fellow on the Brussels Institute for Geopolitics.
Van de Graaf provides that Trump’s latest feedback on Greenland and Canada have large implications for vital minerals. “Beneath Trump, I count on vital uncooked supplies to change into a part of a extra transactional sort of geopolitics.”
Whereas mining firms see grounds for optimism, many executives are a contact nostalgic for the China increase years.
“At its peak, the China supercycle in iron ore was one thing I’ve by no means seen,” says Toth. “And can by no means see once more in my profession.”
Knowledge visualisation by Steven Bernard
