Previously, we discussed how the supply disruptions in Peru could negatively impact the copper supply. In this part, we’ll analyze the recent trends in Chinese copper demand. Since China is the largest copper consumer, keeping an eye on Chinese indicators is crucial for investors in companies like Southern Copper (SCCO) and Glencore Plc (GLNCY).
Land area purchased
Purchasing land is the first step in constructing any building. The above chart shows the land area purchased by Chinese real estate development enterprises. The data is released on a monthly basis by the NBS (National Bureau of Statistics) of China. In the first four months this year, real estate development enterprises purchased 54.69 million square meters of land. This represents a YoY (year-over-year) decline of 32.7%.
Negative for copper industry
The land area purchased by real estate developers is a leading indicator of construction activity. Since the land area purchased for future development came down, the construction industry in China (FXI) seems to be heading for a bigger slowdown.
Copper is widely used to produce plumbing material. It’s used to make taps, valves, and other bathroom fittings. Copper is also used in water pipes and fire sprinkler systems. A slowdown in the real estate sector would negatively impact China’s copper demand.
There are several other indicators of China’s real estate industry that investors can track. We’ll discuss these indicators in detail in the next part of this series.