China’s Auto Sales Rebounded in June: Gauging Iron Ore’s Impact

Since China’s automobile industry is the second-largest consumer of steel after the real estate sector, it’s important to track its developments.

After falling for two consecutive months, auto sales in China rose 4.5% year-over-year (or YoY) to 2.2 million units in June 2017. In the first six months of the year, auto sales totaled 13.4 million, a rise of 3.8% compared to the same period last year. 

Last year, auto sales rose 13.7% due to a cut in the sales tax on small-engine vehicles. The cut is still in place, though it’s at 7.5% this year, compared to 5% last year.

At the beginning of 2017, CAAM (China Association of Automobile Manufacturers) forecast that the growth rate in the auto sector would be 5% in 2017. Since June’s auto sales figures were released, CAAM has maintained its 2017 forecast. As tax incentives for car purchases have been rolled back, demand has shown signs of cooling.

Slowing growth in auto sales in the world’s largest auto market is negative for global steel (SLX) demand. Slowing growth ultimately affects iron ore demand, which is negative for seaborne iron ore players such as Vale (VALE), Rio Tinto (RIO), and BHP Billiton (BHP). 

AK Steel (AKS) and ArcelorMittal (MT) are also exposed to the automotive sector. A slowdown in auto sales will likely also affect these companies negatively.