In September the commodities sector, under siege this year from the double-whammy of increased output and weakening demand, received some welcome news. Out of the blue, the amount of floor space under construction in China ripped higher, jumping by 100 million square metres from August to nearly 250 million square metres.
The spectacular increase is shown in the chart below, supplied by CBA.
To Vivek Dhar and Kofi Mensa, commodity researchers at the bank, it suggested that real property construction was occurring, and potentially signaled that the inventory drawdown in China’s property sector may not be as severe as initially believed.
They noted that the uptick in construction volumes provided a “glimmer of hope”, although they cautioned that more data was needed to confirm the September surge wasn’t merely a one-off event related to data distortion.
Well, fast forward a month and it appears that caution was warranted. In a note released by the same duo overnight, they report that not only did floor space under construction fall, it slid to the lowest level since March.
The chart below reveals the scale of the decline seen over the month.
New construction volumes and floor space sold also fell from levels seen in September. Adding to oversupply concerns, floor space completed increased.
“The data in October is consistent with views that China’s property sector is oversupplied and that an inventory drawdown is still required to see construction volumes increase again,” wrote Dhar and Mensa.
That’s not great news for China’s construction sector, nor the outlook for commodity demand or prices.
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