Key Macro Updates For Freeport-McMoRan Investors
Apparent demand
In the last part of this series, we discussed that China cut its benchmark interest rates to spur its sputtering economy. The slowdown in the Chinese economy is having a severe impact on industrial metal demand. Recently, the ICSG (International Copper Study Group) released its monthly commentary on the copper industry. In this part of the series, we’ll discuss key investor takeaways from this report.
Copper demand contracted 3% in the first quarter
The ICSG estimates that global apparent copper demand fell 3% in the first quarter—compared to last year. You can define “apparent demand” in an economy as the production plus imports minus exports. It doesn’t account for changes in inventory levels. “Apparent demand” is a key metric that investors in metals and mining companies (XME) track.
According to the ICSG, China’s apparent copper demand fell 4% in 1Q15 on a YoY (year-over-year) basis.
China’s slowdown
Copper demand is closely tied to overall economic growth. Analysts see copper prices as a reflection of overall economic activity. China’s copper demand has been negatively hit as a result of the property slowdown. China’s real estate climate index hit a fresh low in the latest reading in May. This can be seen in the previous chart. This index measures the aggregate business activity related to land purchase and real estate.
The real estate sector is among the major copper consumers. In our recent monthly copper indicator series, we discussed the indicators of China’s copper demand .
Chinese slowdown directly impacts mining companies like Glencore (GLNCY), Teck Resources (TCK), BHP Billiton (BHP), and Turquoise Hill Resources (TRQ).
There are several other takeaways from the ICSG monthly report. We’ll discuss these in the next part of the series.
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