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Can the Automotive Industry Support Copper Demand in 2017?

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Copper demand

The automotive industry is among the major copper consumers. China is the world’s biggest automotive market followed by the US and the European Union. So far, automobile sales have been strong in these key markets. For instance, China’s passenger car sales rose 26.6% YoY (year-over-year) in August. This is the fourth consecutive month that car sales have grown by double digits in China.

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China’s car sales

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

Outlook

Some analysts expect that China will extend the tax cut to next year. If the tax cut isn’t extended, we could see some moderation in the country’s car sales. Even with the tax cut, we might not see big YoY spikes next year. Some consumers might have preponed their car purchases to the current year.

US automobile sales could also see stagnation if not a slowdown next year. Some analysts expect car sales in the Europe to also moderate next year after two years of rapid growth.

If we see stagnation in car sales, it would have a negative impact on the demand for metals including copper. Any slowdown in the global automotive industry would be negative for miners (XME) like Freeport-McMoRan (FCX), BHP Billiton (BHP), Southern Copper (SCCO), and Rio Tinto (RIO).

Meanwhile, along with the demand indicators, you should also keep track of the copper supply. In the next part, we’ll see how copper production is shaping up this year.

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