Gauging Chinese Aluminum Demand Indicators in 2017

Chinese aluminum demand indicators

Since China is the world’s biggest aluminum consumer, it’s pertinent for investors in Alcoa (AA), Century Aluminum (CENX), and Norsk Hydro (NHYDY) to keep track of China’s demand indicators. The real estate and construction sector are among the largest aluminum consumers. (Notably, we haven’t gotten Chinese real estate investment data for January and February due to the Chinese New Year holiday.)

Automotive sector

The automotive sector is another leading aluminum consumer. According to the China Association of Automotive Manufacturers, China’s passenger car sales fell 1.1% YoY (year-over-year) to 2.2 million units in January. That’s the first yearly fall since February 2016.

It’s worth noting that China has partially rolled back its sales tax cut, effective January 1, 2017. The country’s car sales growth is expected to fall from double-digit growth seen in 2016.

Notably, car sales were also negatively impacted by the Chinese New Year in January, although car sales were better than expected that month.

Manufacturing activity

China’s January 2017 manufacturing activity created mixed signals. The private Caixin PMI (purchasing managers’ index) came in at 51, down from 51.9 in December 2016. The figure was less than expected, but China’s official manufacturing PMI was better than expected in January.

It might be too early to comment on China’s aluminum demand, however, since some key data points aren’t available. There could also be data distortion due to the early Chinese New Year.

China’s efforts to cool down the country’s property market could start to affect construction activity toward the second half of the year. Remember, China’s construction activity is a key driver of metal prices (RIO) (DBC).