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Why Did Chinese Copper Demand Indicators Fail to Lift Markets?

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Chinese copper demand indicators

Previously in this series, we’ve noted that Chinese copper demand estimates have been revised downwards by several agencies. Markets were expecting a 2H15 recovery in Chinese copper demand, but the country’s recent economic indicators have only added to the general sense of pessimism in the copper markets.

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Indicators falter

  • Purchasing land is generally a prerequisite for building. In the first ten months of the current year, Chinese real estate development firms purchased 178.5 million square meters of land. This represents a year-over-year decline of 33.8%. The pace of the decline is similar to the previous month.
  • The floor area under construction by real estate development enterprises rose 2.3% in the first ten months of the year. However, this is 0.7 percentage points lower over the first nine months of the year.
  • China’s real estate climate index fell marginally in October, as you can see in the above graph. This index measures aggregate business activity in land sales and real estate. China’s real estate climate index has now fallen two consecutive months after briefly inching up in the previous three months.
  • Building sales in China increased 12.6% in October. Year-to-date, building sales have increased by 14.9% in China. However, this is lower than the 15.3% growth in the first nine months of the year.

Slowdown

Although one month of data might be inconclusive, October Chinese real estate indicators point to a further slowdown in the country’s construction activity. The steps taken by the Chinese government to arrest the slowdown seem to be waning. China’s real estate slowdown would negatively affect Chinese copper demand. Copper producers including Teck Resources (TCK), Freeport-McMoRan (FCX), and Glencore (GLNCY) are negatively impacted by the slowdown in Chinese copper demand. Together, Freeport and Newmont Mining (NEM) form ~3.6% of the Materials Select Sector SPDR ETF (XLB).

In the next part of this series, we’ll look at some other indicators of Chinese copper demand.

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