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China’s Aluminum Demand Indicators Drift Lower

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China’s aluminum demand indicators

Previously, we noted that Chinese aluminum exports have surged over the last year. As its domestic demand sputters and new aluminum capacity comes online, China has resorted to massive aluminum exports. In this part of the series, we’ll explore China’s aluminum demand indicators.

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China’s car sales drop

The above chart shows the trend in China’s passenger car sales. The data are released by the China Association of Automobile Manufacturers. In June, China’s passenger car sales fell 3.2%, compared with last year. This is the first yearly decline in China’s passenger car sales since February 2013.

The automobile sector is among the biggest aluminum consumers. A slowdown in China’s vehicle sales is negative for the global aluminum industry.

Real estate indicators slip

China’s real estate indicators have been trending downward for the last several quarters. Aluminum is widely used in building and construction. The slowdown in China’s construction activity would hit aluminum demand.

The global steel industry is already reeling under the impact of a worse-than-expected slowdown in Chinese demand. Teck Resources (TCK) closed six of its Canadian coal mines earlier this year due to subdued demand from Chinese steel mills.

Mining giants such as BHP Billiton (BHP) and Rio Tinto (RIO) are also impacted by the slowdown in China. BHP currently forms 0.29% of the Vanguard FTSE All-World Ex-US ETF (VEU).

Alcoa (AA) expects Chinese aluminum demand to grow 9% year-over-year in 2015. However, looking at the recent indicators, this looks like an uphill task.

In the next part, we’ll look at China’s July PMI (purchasing managers’ index).

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