Iron ore and steel rally as Chinese economic growth beats expectations

Chinese commodities rallied but equities failed to hold on to early gains after China reported better than expected growth in the first quarter alongside mixed readings elsewhere in the economy.

China’s gross domestic product grew 4.5 per cent year on year in the first quarter, coming in well above analysts’ expectations of a 4 per cent rise, as the world’s second-largest economy began recovering after years of disruptive zero-Covid pandemic policies.

Chinese commodities markets responded positively to a 4.1 per cent rise in property sales value. Iron ore futures traded in the north-eastern Chinese city of Dalian jumped as much as 3.5 per cent to Rmb794.5 ($116) per metric tonne following the data release, while Shanghai-traded contracts for steel rebar jumped as much as 1.9 per cent to Rmb3,981 per metric tonne.

Lisheng Wang, China economist at Goldman Sachs, said the growth outperformance suggested “a very strong post-reopening recovery”.

“We expect activity data to improve further [in the coming months] on a very low base last year when Shanghai imposed stringent lockdowns, in addition to reopening impulse and still-accommodative macro policies,” Wang added.

The January-March growth rate was still short of the government’s full-year target of 5 per cent.

In equities markets, China-focused stocks were buoyed by the headline growth figure but later rolled back much of those gains as investors digested mixed signals from March statistics on retail sales and industrial production, which beat and underperformed expectations, respectively.

The CSI 300 index of Shanghai- and Shenzhen-listed shares erased earlier losses to be up as much as 0.5 per cent before paring gains to be up just 0.1 per cent. In Hong Kong, the Hang Seng China Enterprises index of large mainland corporates was down almost 1 per cent.

Analysts said the outsized first-quarter growth reflected a more robust economy and that a stimulus from the Chinese government was unlikely.

Iris Pang, chief economist for greater China at ING, said with consumption rising more than 10 per cent in March, “there is no immediate need for fiscal stimulus to support consumers”.

Elsewhere in the region, Japan’s benchmark Topix rose 0.7 per cent while Australia’s S&P/ASX 200 shed 0.5 per cent. Futures tipped the S&P 500 to edge down 0.1 per cent when trading begins on Wall Street, while the FTSE 100 was set to rise 0.2 per cent.