China’s demand for major commodities has been growing at robust rates, according to a recent note from Goldman Sachs. Despite a faltering macroeconomic growth story in China, the demand for copper, iron ore, and oil has exceeded Goldman’s full-year expectations. The strong demand has been driven by a combination of growth in the green economy, grid and property completions. China’s green economy, particularly its onshore solar installations, has shown significant strength this year, resulting in a surge in demand for metals like copper. According to Goldman Sachs, China’s green copper demand rose 71% year-on-year in July.
China’s operating solar capacity currently exceeds that of the rest of the world combined, and it is on track to double its wind and solar capacity five years ahead of its 2030 goals. The demand for green copper has increased by 130% year-to-date primarily due to surging solar-related demand. Additionally, the recovery in China’s manufacturing sector has boosted demand for base metals like aluminum. The positive manufacturing trends in Q3 have coincided with stronger import levels of base metals. Despite a wider, faltering macroeconomic growth story, Goldman Sachs predicts that the demand growth for these metals will continue into the next year.
China’s oil demand has also been on the rise due to a rapid recovery in oil-intensive services sectors such as transportation. However, Goldman Sachs expects oil demand growth to decelerate significantly next year. The surge in commodities demand in China is happening alongside a struggling Chinese stock market. While the stock market is still trying to find the bottom, commodities are responding to the People’s Bank of China’s monetary expansion. Traders in the Chinese market are considering commodities as a better bet on a marginal improvement in the Chinese real economy.