In their latest China Metals & Mining note, Goldman Sach’s says that Chinese construction activity could be accelerating. Despite general fears that things could be slowing down. If indeed the case, this would likely be supportive of commodity prices through 2010.
Their latest piece comes after site visits to the three Chinese cities of Changsha (in the southeast), Tangshan, and Beijing (both in the northeast).
One highlight from their meetings with construction machinery manufacturers, was that fourth quarter machinery sales for one company are expected to be 20% higher than just the second quarter sales earlier this year. Construction machinery sales generally lead to construction.
They also highlight how property developers are amassing residential land, and supply of land for development has spiked along with average selling prices (ASP). The logic is that this land is likely to be developed.
Finally, they remind us that there are massive amounts of Chinese government stimulus ahead, which will pour into both property and infrastructure projects. All in all they see property driving commodities consumption going forward, with infrastructure maintaining recent strength.
These are just highlights of a longer piece. We’re not sure how this sits with us given the opacity of Chinese channel checks. For example, the first chart above is based on just the report of a single, unnamed company. Just a ‘medium’ one at that. In terms of the second chart above, it could also very well be that many Chinese land buyers have simply gone nuts and in the end won’t develop anything on land they purchased.
Yet the third chart is a strong argument for continued strong Chinese commodities demand. When it comes to stimulus, we haven’t seen nothing yet. Whether it is sustainable or not in the longer-term, if the government throws enough money at infrastructure and property in 2010 then fundamentals won’t matter for a lot of construction-related commodities.
Goldman: “Our visits to developers and their upstream (construction machinery producers/cement producers/steel mills) see clear evidence of property construction demand accelerating, albeit from a low base. Developers still see property sales in October remaining at healthy levels, prompting them to aggressively buy land and push for new construction starts.”
(Via Goldman Sachs, China Metals & Mining, Song Shen, 6 November 2009)