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Chinese Auto Sales Boost Copper Market

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Chinese auto sales

Previously in this series, we learned that most indicators point to Chinese real estate demand trending downward. This negatively impacts the consumption of steel and copper. Apparently, almost a quarter of global steel is used in China’s construction sector.

The automobile sector is another major consumer of copper products. China is the world’s biggest automotive market. Vehicle sales are expected to reach 25 million units there in 2015. Copper radiators, motors, brakes, and bearings are used in the industry. According to estimates, copper content averages about 50 pounds in an average mid-sized vehicle.

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Sales increase

The chart above shows the trend in Chinese passenger car sales. As you can see, passenger car sales are on an uptrend. Chinese auto sales are increasing because the average household is seeing disposable income rise.

China (FXI) has announced plans to take older vehicles that don’t meet emission standards off the road. This would help increase the demand for new vehicles. Higher vehicle sales in China bodes well for the global copper industry.

The uptick in Chinese copper demand benefits companies including Turquoise Hill Resources (TRQ) and Stillwater Mining (SWC).

Manufacturing expands

China’s manufacturing PMI (purchasing managers’ index) also bounced above 50 in March. Analysts track PMI figures closely. This index can offer crucial insights into future GDP (gross domestic product) levels. Readings above 50 generally indicate economic expansion, while a reading below 50 indicates a contraction. China’s manufacturing PMI was below 50 in January and February.

An increase in China’s manufacturing PMI is positive for mining companies such as Glencore (GLNCY). China is the biggest market for mining giants Rio Tinto (RIO) and BHP Billiton. Rio derives almost one-third of its annual revenues from China.

Meanwhile, the US is the largest market for Freeport-McMoRan. In the next part, we’ll analyze the latest US copper demand indicators.

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