14 Dec

What Do China’s Aluminum Demand Indicators Suggest?

WRITTEN BY Mohit Oberoi, CFA

China’s aluminum demand indicators

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

What Do China’s Aluminum Demand Indicators Suggest?

Demand indicators are steady

The real estate sector is among the largest aluminum consumers. In the first 11 months of 2016, the total investment in real estate development rose 6.5% YoY (year-over-year) in China. However, the growth rate fell by 0.10 percentage points compared to the first ten months of the year. Fixed-asset investment is another leading pillar of China’s metal demand. China’s investments in fixed assets rose 8.3% YoY in the first 11 months of 2016. The growth rate was the same compared to the first ten months of the year.

Although China’s real estate demand indicators started to show signs of moderation after the big rise earlier this year, car sales continued to swell. China’s passenger car sales rose 17.2% YoY in November.

Car sales continued to rise

It’s the seventh consecutive month that car sales rose by double digits in China. On September 30, 2015, China announced a 50.0% cut in sales tax for 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. Higher car sales in China support global aluminum demand.

Notably, better-than-expected Chinese aluminum demand provided support to aluminum prices. However, there are concerns that the country’s demand growth rates might slow down next year. We’ll discuss this more in the next part.

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