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Highlights
- China's limited fiscal moves impact commodities.
- Iron ore and copper futures see drops following the announcement.
- Brent crude futures also decline as China's demand outlook remains uncertain.
Commodities took a hit following China's recent announcement regarding its fiscal policy. The Ministry of Finance (MoF) revealed plans to provide some support to the property sector and local authorities but stopped short of introducing any new large-scale fiscal stimulus.
At a much-anticipated briefing, the Chinese government hinted at potentially expanding government borrowing and offering more assistance to heavily indebted sectors, particularly the property industry, which plays a crucial role in driving demand for raw materials. However, concrete details about actual spending plans or major stimulus initiatives were notably absent. This left the market disappointed, as many had hoped for more significant action, especially after speculations about a possible spending package of up to 2 trillion yuan.
In the wake of the announcement, iron ore futures in Singapore experienced a decline of 0.7% to $US105.50 per ton. The iron ore market has seen considerable fluctuations throughout the year, with prices climbing above $US140 per ton earlier in January before dropping below $US90 recently.
Copper futures also felt the pressure. On the London Metal Exchange, the three-month copper contract was down by 0.7%, trading at $US9719 per ton. Copper has been on a volatile path, reaching a peak above $US11,000 per ton in May before retreating over the past few months.
Brent crude oil futures were not spared either, dropping by 1.8%. China, as the world’s largest importer of commodities such as iron ore, copper, and crude oil, plays a significant role in shaping global demand. The absence of substantial fiscal measures to boost economic recovery in China has raised concerns about the near-term demand for these key materials.
The market had been closely watching for China's next steps, especially after a challenging year for the country’s property sector and local government finances. The commodities markets responded negatively to the uncertainty, with investors cautious about the future demand outlook.
