Chinese Property Market Slowdown Could Hit Copper Demand

Chinese property market

In the previous part of this series, we learned that the land area purchased by Chinese real estate development firms declined by 31% YoY (year-over-year) in the first five months of 2015. In this part of the series, we’ll look at China’s real estate climate index in May. The data were released on June 12 by the National Bureau of Statistics of China.

This index measures the aggregate business activity related to land purchase and real estate. It’s useful in analyzing the trend in the Chinese (EWT) (FXI) real estate industry. Figures above 100 indicate economic growth, while readings below 100 indicate a slowdown in the Chinese property market.

Chinese Property Market Slowdown Could Hit Copper Demand

Index drifts lower

The previous chart shows the movement in China’s real estate climate index. As you can see, the index has been on a downward trend. The index stood at 92.43 in the latest reading in May. This is a fresh multiyear low for China’s real estate climate index. As you can also see, the index has been below 100 since October 2011.

Building completion falters

The floor space of completed buildings declined 13.3% YoY as of May. This is specifically negative for the copper industry, given that copper finds its way into buildings during the final stages of construction, in plumbing material and electrical fittings.

As well, Chinese real estate firms had started construction on only 503 million square meters as of May, a 16% YoY decline.

A slowdown in the Chinese property market is negative for companies such as Vale (VALE), Teck Resources (TCK), and BHP Billiton (BHP).

Amid all the gloom surrounding the Chinese property market, building sales registered their first annual gain since 2013. We’ll discuss this in detail in our next part.