The story so far
Steel consumption has dramatically shifted from the developed world to the emerging world. Today, China is the largest consumer, accounting for almost half the world’s steel. Because of this mammoth consumption, Chinese demand drove the steel markets. We can divide the Chinese steel market into three main periods. The first period is from 1991–2000, when China started investing in its infrastructure. Consumption grew at a rate of 8% over this period. The second and most important period came between 2000 and 2009, when China built infrastructure to host the Olympic Games. Chinese steel demand grew by over 17% in this period.
How much appetite is left in the Chinese dragon?
Since 2009, China has entered into a new phase. So has the world. In 2013, steel consumption in China grew 6%. It’s now forecasted to grow around 3% this year.
Up to May this year, the residential floor space sold declined 9%. Meanwhile, the floor space for sale increased 25%. A decline in sales with an increasing supply isn’t positive for this sector. The Chinese real estate climate index has been falling. You can see this trend in the chart above. This, along with Chinese PMI, interest rates, and industrial activity, is an indicator investors in companies and ETFs like Arcelor Mittal ADR (MT), United States Steel Corporation (X), Nucor Corporation (NUE), Reliance Steel & Aluminum (RS), and the SPDR S&P metals and mining index (XME) should look at.