A slump in China’s property sector that has hit steel consumption may be a warning signal for industrial metal copper, which reacts with a time lag to the construction cycle.
The extent of the impact is not yet clear, but for some, falling steel demand is raising concerns about Chinese copper demand growth this year.
Steel is mainly used in the early stages of construction while copper is largely consumed towards the end of the building process in electrical cabling and plumbing. Additional copper is also needed for consumer appliances once housing is sold.
"Recent sharp weakening in steel demand ... may be the ’canary in the copper market’, Goldman Sachs analyst Max Layton said. "To the extent steel demand weakness reflects weak new (housing) starts, this may be a prelude to declining copper-intensive construction completions."
China is the largest global consumer of both steel and copper, accounting for nearly half of the total for each metal. The Chinese property sector is widely regarded as one of the biggest threats to overall economic growth.
Average new house prices fell 6.1 per cent in March, the seventh consecutive monthly decline, while growth in China’s real estate investment in the first quarter slowed to 8.5 per cent, the lowest rate since 2009.
That slump had a clear impact on steel demand.