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Rising Global Automotive Sales Should Support Aluminum Demand

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Aluminum demand

Alcoa (AA) counts the aerospace and automobile industries as its two growth pillars. As a pioneer in producing sheet products for the automobile industry, Alcoa has become a lightweighting powerhouse.

Constellium (CSTM) also supplies sheet products and structural parts to automotive companies. In this article, we’ll look at July’s automobile sales in China and the United States.

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Car sales rise

According to the Wall Street Journal, China’s passenger car sales rose to 1.6 million in July, a year-over-year (or YoY) increase of 23%. This is the highest growth rate in 3.5 years. Although the data is impressive, it should be taken with a pinch of salt. In July 2015, China’s car sales had fallen by 6.6% YoY. The huge jump in this year’s car sales is due to the lower base year effect.

Nonetheless, higher automotive sales in the world’s biggest car market bode well for global aluminum demand. More car sales support copper and steel demand as well. Miners (XME) like BHP Billiton (BHP) and Rio Tinto (RIO) benefit from higher Chinese metal demand.

US auto sales have also been steady this year. July car sales showed a SAAR (seasonally adjusted annual rate) of ~17.8 million in July, according to WardsAuto.

Outlook

On September 30, 2015, China announced a 50% cut in sales tax on cars with engines smaller than 1.6 liters. The cut, which was effective October 1, 2015, will last until the end of 2016. China’s car sales received a boost from the sales tax cut.

It will be interesting to see how China’s car sales shape up next year when the sales tax cut expires. In the US also, we could see car sales plateau next year after years of rapid growth.

In the final part of this series, we’ll see how aluminum’s demand-supply equation impacts physical premiums.

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