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China's construction sector is showing early signs of recovery as local government debt pressures ease, which could positively impact commodity demand, including steel, according to Goldman Sachs. The bank noted that Beijing's efforts to address local government debt have spurred renewed infrastructure activity, with insights gathered from nearly 40 meetings during a recent trip to China. Goldman analysts expressed early confirmation of their optimistic outlook on commodities driven by construction demand.

China's ongoing property crisis had previously affected a wide range of construction materials, including iron ore, which has dropped more than 25% in value since last year. However, the government's recent commitments to support the sector during policy meetings have led to a gradual increase in demand for infrastructure-related commodities, a trend that could signal the first growth in three years, according to Goldman.

Additionally, China's steel industry, which produces 1 billion tons annually, is facing speculation about potential supply-side reforms. Concerns over overcapacity and a possible increase in export restrictions have prompted discussions about the need for production cuts. Goldman analysts predict that around 50 million tons of steel production could be reduced in the near future to restore profitability and prevent financial issues.

As a result, iron ore futures in Singapore have risen by 1.3%, reaching $103.55 per ton, marking a potential weekly gain. Other steel-related commodities, including rebar and hot-rolled coil contracts in Shanghai, have also seen upward movement.

Paraphrasing text from "Bloomberg"all rights reserved by the original author