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Chinese Copper Demand Indicators Continue to Drift Lower

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Chinese copper demand indicators

Previously in this series, we looked at China’s September manufacturing PMI (purchasing managers’ index). Now, we’ll explore the indicators of Chinese real estate and automotive sector. These two sectors are among the major copper end users in China (GXC).

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Vehicle sales continue to slide

China’s passenger car sales fell 3.39% year-over-year (or YoY) in August. This marks the third consecutive month where China’s passenger car sales have registered a YoY decline. In the first eight months, passenger car sales have risen at a dismal 2.5% as compared to the previous year.

The slowdown in China’s car demand would lead to lower copper demand there. The slowdown in Chinese copper consumption is negative for copper producers including Freeport-McMoRan (FCX), and Teck Resources (TCK). Automotive component suppliers such as Delhi Plc. (DLPH) and Johnson Controls (JCI) are also affected by the slowdown in China’s car sales.

Property slowdown

According to data released by the country’s National Bureau of Statistics, leading indicators of China’sreal estate sector point to a continued slowdown.

  • In the first eight months of 2015, the land area purchased by real estate development enterprises has fallen 32.1% YoY. According to China’s National Bureau of Statistics, “the pace of decrease expanded 0.1 percentage point over the first seven months.”
  • Until August, Chinese real estate development enterprises started construction on 951.82 million square meters—a YoY decline of 16.8%.
  • However, the sales of buildings—both commercial and residential—have increased for four consecutive months. Before that, building sales in China had fallen YoY in every month since February 2014. As Chinese equity markets continue to sag, investors there could be again looking at real estate as an alternate.

Please note that copper demand, as well as steel and aluminum demand, depends on the pace of construction activity. Although real estate sales have picked up in China in recent recent months, the country’s construction activity continues to sag. The sales are probably coming from a huge inventory stockpile with Chinese real estate enterprises.

In the next part, we’ll look at supply side dynamics of the Chinese copper industry.

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