Goldman Sachs says China's demand for oil and copper is 'booming'

Important Points

The macroeconomic growth in China is also faltering.

Goldman Sachs stated in a note that China's appetite for major commodities is growing at "robust" rates.

Goldman Sachs' investment bank noted that China's appetite for iron ore, oil, and copper is up 7% on average year-on-year, and all of these have exceeded Goldman's expectations for the full year.

Goldman's report noted that "this strength in demand is largely due to the combination of strong growth coming from the grid, green economy and property completions."

The investment bank stated that China's struggling property sector has yet to show "significant strength". This year's demand for metals associated with the green transition such as copper, is on the rise.

Goldman's economists attribute China's green rush to solar installations onshore, which have so far "amounted to all previous years' installation."

Global Energy Monitor's June report stated that China's solar operating capacity had reached 228 GW. This is more than all the other countries combined. The second largest economy in the world is on course to double its solar and wind capacity five years before its 2030 goal.

Goldman Sachs has compiled data that shows China's demand for green copper rose 71% from the previous year in July.

Goldman stated in a separate August 25 report that "the most significant strength is on the renewables' side, where copper demand has increased 130% year-to date y/y due to a surge in solar-related demand."

The recovery in China's industrial sector has also led to a rise in the demand for metals such as aluminum.

The report states that "the improvement in manufacturing trends in Q3 coincided with higher import levels of base materials."

China's industrial output grew 4.5% in August, compared with a year earlier. This was higher than the expected growth of 3.9%. Within that category, value added in equipment manufacturing increased by 5.4% on an annual basis.

Goldman predicts that the demand for these metals will continue to grow.

The report predicts that "we see a supportive underpinning into next year for the onshore aluminum demand and copper demand given the current positive factors are sticky."

Analysts say that China's oil consumption has been on the rise as well, thanks to a "rapid" recovery in oil-intensive sectors like transportation. However, they also said that a dip may be coming.

Goldman noted that "China's oil demand has been supported through record internal mobility as evidenced by robust congestion data and domestic flight data."

We believe that this level of growth is sustainable. However, we do expect it to slow down significantly in the coming year.

Commodities: a "better bet"?

The rise in commodities is despite a faltering macroeconomic story in China.

Hao Hong, chief economist at Grow Investments, said: "You're seeing commodities respond to [the People's Bank of China's] financial expansion while the Chinese Stock Market is still trying find its bottom."

Hong said on CNBC Tuesday that "you're seeing an enormous split between the asset classes."

Recently, the PBOC announced that it would continue to increase macro-political adjustments while maintaining a stable credit expansion with sufficient liquidity.