Chinese cities may be scrambling to contain a private housing bubble, but industrial metals' prices will be supported by a global public infrastructure spending boom, according to a BMI Research report.
Copper and steel is used extensively in building and infrastructure construction, so their prices are gauges of how the economy is doing, while iron ore is a key steel-making ingredient. Copper prices have risen 20 percent year-to-date, while iron ore prices have risen over 30 percent.
Chinese city governments have recently announced a flurry of curbs on property purchases, which could be seen as a dampener on industrial metals, but new building construction is expected to continue at a rapid rate at least into the new year.
ANZ said in a report last week that given the construction cycle lasted some 12 to 18 months, building completions in China were likely to remain relatively strong through 2017 — a positive for steel demand, and thus iron ore prices. In the longer term, however, steel demand may be slightly lower because construction activity has been brought forward due to robust state-owned-enterprise investment.
"As such, we are likely to see less urban residential housing completions later this decade," ANZ commodity strategist Daniel Hynes wrote.
Meanwhile, continued state infrastructure spending in China and a move away from post-Global Financial Crisis austerity in the U.S., EU and Japan signaled upside to prices, Fitch's BMI Research said in a report last week.
"A policy shift in major developed and emerging markets, away from austerity and towards fiscal expansion, will drive a new wave of infrastructure stimulus, the likes of which we have not seen on such a global, synchronized scale since the global financial crisis of 2009," the report said.