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Chinese Copper Demand Indicators Aren’t that Bad this Year

Mark O'Hara

Understanding the Strategic Importance of Freeport’s Asset Sales

(Continued from Prior Part)

Chinese copper demand indicators

As China is the largest copper consumer, it’s prudent for investors in companies such as Freeport-McMoRan (FCX), Southern Copper (SCCO), and Turquoise Hill Resources (TRQ) to keep track of Chinese copper demand. In this final part of the series, we’ll look at the Chinese real estate, automobile, and manufacturing sectors.

Manufacturing sector

China’s manufacturing activity has shown signs of improvement in 2016. China’s manufacturing PMI (purchasing managers’ index) has now been above 50 for two consecutive months, as can be seen in the graph above. Although the PMI figures came in lower than expected in April, they still were above 50. This provided some optimism to the Market. The country’s trade data was also quite robust last month, with exports increasing by 18.7% year-over-year (or YoY).

Looking at the automobile sector, in the first three months of the year, 5.6 million passenger cars were sold in China, a YoY increase of almost 7%. China’s car sales have received a boost from the sales tax cut announced by China last September.

Real estate indicators

  • Purchasing land is generally a prerequisite before building can occur. The land area purchased by Chinese real estate enterprises for future developments has fallen by more than 11.7% (or YoY) in the first three months of 2016. However, the floor area under construction by its real estate development enterprises has risen by 5.8% in the first three months of 2016.
  • In the first three months of this year, building sales have increased by 54.1% YoY in China. New construction starts have also risen by 19.2% YoY in the first three months after steadily declining for two years, as can be seen in the graph above.
  • China’s investment in fixed assets also rose by 10.7% YoY in the first three months of 2016.

If the upturn in Chinese real estate industry is for real, and the worst of China’s economic slowdown is behind us, Freeport bears (SPXU) (SPXS) could be in for even tougher times ahead. But then, in a year full of global uncertainties, bears cannot be out of sight for too long.

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