What Do China’s Surging Car Sales Mean for Freeport’s Stock?



Freeport’s stock

As we discussed in the preceding part of this series, China’s real estate indicators improved in October. We also saw an improvement in China’s fixed-asset investments last month. China’s investments in fixed assets rose 8.3% YoY (year-over-year) in the first ten months of 2016. The growth rate rose by 0.1 percentage point as compared to the first nine months of the year.

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Car sales surge

China’s passenger car sales rose 20% YoY (year-over-year) in October. This is the sixth consecutive month that car sales have grown by double digits in China. On September 30, 2015, China announced a 50% cut in 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.

What does it mean?

Higher car sales in China would support the country’s copper demand. Companies like Freeport-McMoRan (FCX), Rio Tinto (RIO) (TRQ), and BHP Billiton (BHP) rely on China’s copper demand. Higher construction activity in China in addition to rising car sales will likely bode well for copper producers (XLB).

We should note, however, that some of the Chinese cities tightened home ownership rules in an effort to cool down overheating in the property market. Any slowdown in China’s property market is negative for global copper demand.

Meanwhile, the country’s copper demand could also come under pressure if Trump is tough on imports from China. We’ll discuss this further in the next part.


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