China’s metal factories cut production on poor outlook

The extended shutdowns in the world’s top metal consumer will see stocks of primary metals used to make finished goods build up, pressuring prices of such raw materials into 2023.

Demand in the world’s top metals consumer has been hit hard this year by a slump in the country’s huge property sector, as well as strict covid-19 containment measures that hurt industrial activity for long periods.

China abruptly abandoned its strict covid-19 policy earlier this month, but the lifting of restrictions has brought high levels of infection, further disrupting production.

Factory activity is expected to have extended declines in December, a Reuters poll showed on Friday.

Overseas orders for Chinese products are also falling as global economy slows.

“Our orders are cut by 30% as our customers, namely metals processors, are shutting down their production because of subdued consumption from real estate,” said a manager at a Guangdong-based zinc alloy producer with monthly output of 2,000 tonnes.

The company has already shut its factory for the Lunar New Year holiday that begins on Jan. 21, and asked workers not to return until after Feb. 5.

China’s factories normally halt production for a fortnight during Lunar New Year so that workers can go home to celebrate the festival with their family.

“This year, at least half of our suppliers and customers have shut down their production for about one month,” said a copper tube producer based in Foshan, an industrial city in southern Guangdong province.

In December, air conditioning makers, a key user of copper tubes, cut their scheduled production by 39% on the year to 11.7 million units, said Suo Xiaofang, deputy general manager of the home appliances research at information provider ChinaIOL.com.

Most aluminum extrusion products producers in Foshan have also already closed for holidays, said Li Suheng, non-ferrous metals analyst at CITIC Futures.

“This will have a significant impact on aluminum demand in the short-term,” she told a conference held by Shanghai Metals Market in Foshan on Friday.

Stocks of the light metal are expected to reach 1.24 million tonnes in February, added Li, compared with around 500,000 tonnes this month.

The widespread shutdowns come even after Beijing issued a series of new policy measures to revive its heavily indebted property sector and promised support to the struggling consumer and services industries.

Metals sector participants said it will take time for those policies to spur actual demand and for consumer confidence to recover.

Another Foshan-based producer of copper and aluminum products plans to cut output by as much as 20% in the first half of 2023 from the same period a year ago, a manager said.

Similarly, a Guangdong-based copper tube producer said his firm also planned to cut output next year by 20,000 to 30,000 tonnes. This year’s output was already lowered by 80,000 tonnes to 520,000 tonnes, he said.