Chinese aluminum industry

Previously, we explored the trend in aluminum inventory. We also noted that aluminum prices are hovering around their six-year lows largely on concerns over China (MCHI). As China is the biggest aluminum consumer, it’s important for investors in aluminum companies to keep track of China’s macroeconomic indicators.

Alcoa (AA) expects Chinese aluminum demand to grow 9% year-over-year, or YoY, in 2015. In this part, we’ll look at some indicators of the Chinese aluminum industry.

Exports down

China’s exports fell 8.3% YoY in July. This was worse than the average analyst estimates. China’s exports have fallen because of less demand from its major trading partners including Europe (EZU) and Japan.

China’s imports also fell 8.1% YoY in July. Lower imports reflect a slowdown in China’s economy. Although China’s 2Q15 GDP shows an expansion of 7%, several analysts have questioned the way GDP figures were calculated.

PMI below 50

China’s manufacturing PMI (purchasing managers’ index) fell to a two-year low in July. This can be seen in the previous chart. The figure, which was released by Markit on August 3, was a blow for market sentiments. What’s worse, the final PMI figure was even less than the preliminary reading.

China’s real estate industry, which is among the major aluminum consumers, is also in a slump. The slowdown in China’s property sector has been a major risk for miners including BHP Billiton (BHP).

The automotive sector is another major end user of aluminum. China is the largest market for General Motors (GM), which now sells more vehicles in China than in the United States. In the next part, we’ll analyze how the Chinese automobile industry is playing out.