Building sales in China
Copper is widely used in producing plumbing material, including taps, valves, and other bathroom fittings. Copper is also used in water pipes and fire sprinkler systems in commercial and residential buildings. Investors in copper products should track construction activity closely. Freeport-McMoRan (FCX), Teck Resources (TCK), BHP Billiton (BHP), and Glencore (GLNCY) are among the major copper producers. FCX currently forms 3.1% of the Materials Select Sector SPDR ETF (XLB) and 3.41% of the iShares US Basic Materials ETF (IYM).
Building sales fall
Building sales are widely tracked as an indicator of China’s real estate industry. The previous chart shows the year-over-year (or YoY) change in building sales in China. In February 2015, building sales fell by 15.8%. Building sales in China have fallen every month since February 2014, indicating a clearly downward trend for China’s real estate sector. This trend is also negative for the copper industry, since the real estate sector is among the major consumers of copper.
Property prices have also been weak in China. In February 2015, new home prices fell in 66 out of the 70 top Chinese cities. In January, prices had fallen in 64 cities. This decline in real estate prices is a negative indicator for China’s real estate industry, negatively impacting investor sentiments.
China’s real estate climate index has been below 100 for several months. This index was developed by China’s National Bureau of Statistics and measures the aggregate business activity for land and real estate. Figures above 100 indicate economic growth, while readings below 100 indicate a slowdown in China’s real estate market.
The automobile sector is another major consumer of copper. In the next article, we will discuss the latest trends in China’s automobile industry.