China’s real estate climate
Previously, we discussed that the land area purchased by real estate developers for future construction activity fell steeply in the first four months of this year. In this part, we’ll look at China’s real estate climate index. The index is updated on a monthly basis.
It measures the aggregate business activity for land and real estate. The index is useful for analyzing trends in the Chinese real estate industry. Figures above 100 indicate economic growth, while readings below 100 indicate a slowdown in China’s real estate market.
Index drifts lower
The above chart shows the movement in China’s real estate climate index. As you can see, the index has been on an downward trend. The index was at 92.5 in the latest reading in April—down from 93.1 in March. This is a fresh multiyear low for the index. Apparently, the index has been below 100 since October 2011.
Decline is negative for the copper industry
The decline in China’s real estate climate index is another indicator that the construction activity slowed down in China (EWT) (EWH). China’s real estate sector is a key driver of global copper demand.
Please note that while steel is used in the initial structure of a building, copper is used as the building nears completion. Copper is used in plumbing and electrical fittings—this takes place once the initial building structure is ready. The current slowdown in China’s construction activity would negatively impact future copper demand as well.
The automobile sector is another major copper consumer in China. In the next part of this series, we’ll discuss how vehicle sales are shaping up in China.