Iron Ore Prices Going through the Roof: Here's the Outlook

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Part 11
Iron Ore Prices Going through the Roof: Here's the Outlook PART 11 OF 14

How China Affected Markets in September

Industrial production, fixed-asset investment

Industrial output measures the output of businesses involved in the industrial sector, including manufacturing, mining, and utilities. FAI (fixed-asset investment) is a measure of capital spending and refers to any investment in physical assets, such as real estate infrastructure and machinery, held for more than one year.

FAI is also a good indicator of how much investment occurs in a country or region, and it’s a closely watched indicator of construction activity in China.

How China Affected Markets in September

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Industrial production slows in September

According to the monthly data released by the NBS (National Bureau of Statistics) of China, China’s industrial output rose at an annualized rate of 6.1% YoY (year-over-year) in September, but industrial production had risen by 6.3% in August. This slower rate of growth in September was unexpected as other measures of investment painted a brighter outlook.

Fixed-asset investments

China’s FAI expanded 8.2% from January to September 2016, which was slightly higher than during the first eight months of the year. The NBS also mentioned that the investment structure has improved as more money is being spent on high-tech and service sectors rather than on industries that are already seeing excess capacity.

Impact on companies

Industrial production and FAIs are barometers of economic health, and any rise in industrial production, of course, is a good sign for an economy. Over the past six months, we’ve seen that China’s (MCHI) (ASHR) economy is transitioning from a manufacturing hub to a consumption-based economy. This change will be good for the Chinese economy, but it might not be great news for iron ore mining companies, which have expanded production to feed the country’s investment-led growth.

Remember, iron ore prices affect companies like Rio Tinto (RIO), BHP Billiton (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF) as well as the SPDR S&P Metals and Mining ETF (XME).


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