China’s 3Q15 GDP
China released its 3Q15 GDP (gross domestic product) numbers on October 19. According to data from the National Bureau of Statistics of China, the Chinese economy grew at 6.9% in the quarter, the slowest pace since the first quarter of 2009.
The chart below shows the falling trend in China’s GDP. Although the 3Q15 GDP growth came in lower compared to the previous quarter, it was still better than the average market expectations of a 6.8% growth.
Investors looking at a diversified exposure to the basic materials sector can consider the Materials Select Sector SPDR ETF (XLB).
Better than expectations
China’s 3Q15 GDP growth came in better than analyst estimates, but the data also showed that industrial activity and fixed asset investment are growing slower than expected. In the first nine months of 2015, China’s fixed asset investment grew 10.3%. This, according to the National Bureau of Statistics of China, is “1.1 percentage points lower than that in the first half of the year.”
The industrial output increased by 6.2% in the first nine months of the year compared to the corresponding period last year. However, industry output grew by only 5.7% year-over-year (or YoY) in September, missing analyst expectations. Meanwhile, retail spending remained strong, growing 10.9% YoY in September.
Implications for the mining sector
The big question for investors in mining companies, including Freeport-McMoRan (FCX), BHP Billiton (BHP), and Turquoise Hill Resources (TRQ), is what China’s “new normal” implies for the industrial metals sector. Please note that Turquoise Hill Resources is majority owned by Rio Tinto (RIO).
The investment-led boom fueled China’s metal appetite in the last decade. Now, with the country moving more toward a consumption-driven economy, demand for metals such as iron ore and steel could be subdued in the coming years.
Copper is also widely used in the consumer appliances industry. But it remains to be seen if higher consumer spending can make up for lower copper demand from the industrial and real estate sector.
In the next part, we’ll explore the recent movement in copper prices.