Markets have rallied amid signs that China is preparing to loosen some of the restrictive measures of its zero-Covid policies.
Following protests over the weekend, China’s National Health Commission said the excessive curbs should be avoided, even as the virus spreads.
The country is now reportedly pushing for greater vaccination of the elderly, driving speculation that it may ease some of the rules even further.
“The spectre of China shifting away from zero-Covid policies saw commodities rally across the board. Signs of colder weather also boosted sentiment in energy markets,” said Daniel Hynes, senior commodity strategist at ANZ Bank.
Hynes said Iron ore was little changed following strong gains last week, but market sentiment remains buoyed by recent measures to support the country’s beleaguered real estate sector.
China’s imports of iron ore from Australia are up 3.5% in the first 10 months of 2022 to 609.6m tonnes, according to Italian shipbroker Banchero Costa. Australia accounted for over 82% of China's imports.
While this is an increase on the 589.2m tonnes imported in 2021, it is still below the all-time record 614.8m tonnes shipped by Australia to China between January and October 2020.
The possibility of rising demand from less restrictive mobility rules has also seen crude oil markets rally sharply, according to ANZ’s Hynes.
He said implied oil demand remained subdued at 13m barrels per day (bpd), some 1m bpd lower than average demand as congestion levels in China’s 15 biggest cities showed little improvement over the past week.
However, he said any relaxation of quarantine rules, as well as relaxation of travel restrictions, would “see demand rebound quickly”.
Breakwave Advisors founder John Kartsonas told TradeWinds that China’s gradual shifting towards a more relaxed Covid policy was “positive for shipping”.
“It increases domestic demand for construction and manufacturing which means more demand to ship raw materials into the country and demand to export manufactured goods from the country to the rest of the world,” he said.
On the potential impact of any further protests, Kartsonas said unless the protests escalate to the point where we are dealing with widespread interruptions to the country’s transportation network the ports should remain operational.
“The main commerce centres as they relate to shipping are around major metropolitan areas with Shanghai being the most important, so that is something to definitely monitor,” he added.
