In Part 1 of this series, we learned that copper prices have corrected by ~$600 per ton over the last month. Now, we’ll look at how copper demand is shaping up in China.
As the biggest copper consumer, China drives the global copper industry. In this part of the series, we’ll look at Chinese real estate indicators for May, according to data released by the National Bureau of Statistics of China on June 12.
Land area purchased
Purchasing land is generally a prerequisite before building can occur. The previous chart shows the land area purchased by Chinese real estate development firms. In the first five months of current year, real estate development firms purchased 76.50 million square meters of land. This represents a YoY (year-over-year) decline of 31%.
Negative for copper industry
The land area purchased by real estate developers is a leading indicator of construction activity. Given that there was less land area purchased for future development, the construction industry in China (EWT) is likely headed for a bigger slowdown.
Copper is widely used in producing 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 Chinese copper demand.
And that would be negative for copper producers including Turquoise Hill Resources (TRQ), Rio Tinto (RIO), and Freeport McMoRan (FCX). FCX currently forms 4.1% of the Materials Select Sector SPDR ETF (XLB).
There are several other Chinese real estate industry indicators that copper investors should track. We’ll discuss these in detail, in our next part.