Will Chinese Copper Demand Pick Up in the Coming Months?
What's Driving Freeport and Other Copper Producers in 2015?
Chinese copper demand
In the previous part, we looked at the recent trend in China’s (MCHI) (EWH) industrial sector. In this part, we’ll take a look at Chinese real estate activity. China’s real estate sector is a key driver of global copper demand.
Building sales fall
Building sales are widely tracked as an indicator of China’s real estate industry. The above chart shows the year-over-year change in building sales in China. As you can see, building sales fell by 3.1% in April. They declined by 9.3% in March.
However, building sales have declined at the slowest pace since February 2014. Investors should track this indicator for a few more months to see if China’s property market is bottoming out.
Copper usage
While steel is used in the initial structure of a building, copper finds its way into the construction when the building is nearing completion. Copper is used in plumbing and electrical fittings, which are installed once the initial building structure is ready.
Leading indicators of China’s construction sector have been trending downward. In the first four months of the current year, real estate development enterprises purchased 54.69 million square meters of land. This represents a year-over-year decline of 32.7%.
The current slowdown in Chinese construction activity will negatively impact future copper demand. A slowdown in Chinese copper demand is a negative for copper producers like Freeport-McMoRan (FCX), Buenaventura (BVN), and Thompson Creek Metals (TC).
Meanwhile, Turquoise Hill Resources has decided to go ahead with the planned expansion of its mine in Mongolia. How will this impact copper market dynamics? We’ll find out in the next part of the series.
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