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Is Chinese Aluminum Consumption Showing Signs of Moderation?

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Chinese aluminum consumption

Since China (FXI) is the world’s largest aluminum consumer, it’s important for investors in companies such as Alcoa (AA), Century Aluminum (CENX), and Rio Tinto (RIO) to keep track of Chinese aluminum demand indicators.

Notably, during its 2Q16 earnings conference call, Norsk Hydro (NHYDY) raised its 2016 global aluminum demand growth projection to 4%–5% from the previous projection of 3%–4% growth. The company attributed higher Chinese aluminum demand as the key factor behind its new projection. China’s property market saw a rebound this year due to the government stimulus. However, the impact of these stimulus measures has been fading.

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Real estate indicators

  • The land area purchased by Chinese real estate enterprises for future developments has fallen 8.5% YoY (year-over-year) in the first eight months of 2016. The rate of decline was 0.9 percentage points higher—compared to the first seven months of the year.
  • The total floor area (in square meters) under construction by Chinese real estate development enterprises rose 4.6% in the first eight months of 2016. The growth rate fell 0.2 percentage points—compared to the first seven months of the year. This was the fourth consecutive month in which growth rates fell on a monthly basis.
  • China’s new construction starts rose 12.2% YoY in the first eight months of 2016 after falling steadily for two years, as you can see in the above graph. However, the growth rate fell compared to the first seven months of the year.

Although China’s overall August economic data were better-than-expected, the slowdown in real estate activity points to slowing demand for metals like aluminum.

Chinese real estate activity has slowed down, but the country’s car sales are still going strong. We’ll explore this more in the next part.

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