Vale SA (ADR) (NYSE:VALE) is receiving a large benefit from the increase in the car sales in China. Not only Vale, other companies, such as Rio Tinto plc (ADR) (NYSE:RIO) and BHP Billiton Limited (ADR) (NYSE:BHP) are benefiting from the positive transition in the Dragon’s economy. Let us have a look as to how this happened.
The sunny side of copper market in China
Recently, it was observed that the realty market in China was hitting the bear. This resulted in slower growth in fixed asset investment in the Dragon’s land in the month of October 2015. Factually, the investment in the fixed assets of Chinese economy increased at 10.1%. Even though it seems pretty well, but this is 0.1% less than the growth observed during initial nine months. Enters the sunny side- the automotive sales in China! The positive car sales are actually like a supper to the copper investors. With the mining companies connected to the copper investors, the companies like Vale, seem to enjoy this brighter side of the Chinese economy. This is how everything seems connected.
Car sales trend in China
How the mining companies are benefiting from this trend is as interesting as it may seem. The automobile sector in any economy remains a huge consumer of copper as well as steel products. With the gigantic size of the Chinese automotive market, it wouldn’t be wrong to say that companies like Vale are indeed going to enjoy all the advantages of an increase in their car sales. It is estimated that the sales of vehicles in China will touch the milestone of 24 million units by dusk of this year.
China’s Economic Policy benefiting car sales and mining companies
Despite the sagging economy, China’s economic policies are benefiting the automotive market, which is one of the largest in the world. If the data from China Association of Automotive Manufacturers or CAAM is to be believed, the passenger car sales in the country increased by over 13% Y-o-Y in October alone. Since the previous year, this is the maximum growth registered.
In September, China also announced that it shall chop down its sales tax by 50% on those cars that have engines’ size smaller than 1.6 liters. This slashed down sales tax will continue until the dusk of 2016.
This is not just a direct benefit to the Chinese consumers, but also to the mining companies that are directly/indirectly associated with an automotive sector of Dragon.