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Copper Demand Subdued as China’s Manufacturing Engine Sputters

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Copper demand

Previously, we have seen that China’s (FXI) refined copper production is on an uptrend while it has reduced its reliance on refined copper imports. China is now importing more copper ore so it can to refine the ore domestically. Interestingly, looking at the first six months of 2015, China’s refined copper imports have dipped ~10% year-over-year (or YoY) while the imports of copper ores and concentrates have risen by a similar amount over this period.

China’s manufacturing sector has been the growth engine for global copper demand over the last decade, fueling the so-called commodity super cycle. In this part, we’ll look at some indicators of China’s manufacturing activity.

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Exports down

China’s exports fell 8.3% YoY in July, which was worse than the average analyst estimates. China’s exports have fallen because of lower demand from its major trading partners, including Europe (VGK) and Japan.

China’s imports also fell 8.1% YoY in July. Lower imports reflect a slowdown in China’s economy. However, China’s 2Q15 GDP shows an expansion of 7%, and several analysts have questioned the way GDP figures were calculated.

PMI below 50

China’s manufacturing PMI (purchasing managers’ index) fell to a two-year low, touching 50. This can be seen in the above chart. The data, which was released by Markit on August 3, acted as a blow for market sentiments. Worse, the final PMI figure was lower than the preliminary reading.

China’s real estate indicators should be out in the next couple of days. The slowdown in China’s property sector has been a major risk for miners, including Rio Tinto (RIO), Vale S.A. (VALE), and Teck Resources (TCK).

In the next part, we’ll look at the indicators of US copper demand.

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