Why Real Estate in China Matters
China’s real estate investments increased in April 2017 as compared to the previous month. Sales growth, on the other hand, was significantly slower.
In April, China’s steel production surpassed the previous monthly record of 72 million achieved in March 2017 by producing 72.78 million tons.
By tracking credit growth in China, investors can gauge patterns that forecast future demand.
China imported 82.2 million tons of iron ore in April, as compared to 95.6 million tons in March 2017.
Iron ore shipments from major ports in Australia and Brazil are key indicators for investors, representing the supply side of the iron ore equation.
Vehicle sales in China, including trucks and buses, fell 2.2% YoY (year-over-year) to 2.1 million in April 2017.
In April, Chinese steelmaker Baoshan Iron & Steel announced that it would cut prices for its steel products—its first cut in ten months.
China’s iron ore port inventory reflects supply and demand. It also indicates the safety net and imbalance between iron ore supplies and steel mill demand.
Analysts have been expecting a downturn in iron ore. Analysts upgraded their short-to-medium-term forecasts, but they’re still not positive about long-term fundamentals.
Rio Tinto’s (RIO) CEO (chief executive officer) said that the company can maintain cash returns even if iron ore prices drop to near record lows.
Iron ore prices have pulled back significantly in the past few weeks on concerns of weaker Chinese demand.
Cliffs Natural Resources (CLF) is trading at a forward EV-to-EBITDA multiple of 5.4x, compared to its trailing-five-year average of 9.7x.
Cliffs Natural Resources (CLF) has garnered “buy” and “sell” recommendations from 25% of analysts each, while 50% of analysts have recommended “holds” on the stock.
Among the most dominant factors driving the recent iron ore price rally are higher steel production and the rise of steel prices in China (FXI).
Cliffs Natural Resources’ (CLF) Asia-Pacific segment is fully exposed to the seaborne iron ore market.
After enjoying an extended price rally contrary to consensus expectations, iron ore prices finally plunged into a bear market starting in April 2017.
Just like the prices of other commodities, steel prices depend on steel supply and demand dynamics. Steel saw a change in fortunes in 2016 due to higher anti-dumping duties, leading to lower imports.
Since Cliffs Natural Resources’ US Iron Ore segment supplies raw material to US steelmakers, steel production in the United States (SPY) (SPX) is an important driver of its performance.
US steel demand is the major driver of steel companies’ volumes and prices. Since these companies are Cliffs Natural Resources’ main customers, it’s important to track steel demand data.
Cliffs Natural Resources’ (CLF) USIO (US Iron Ore) segment mainly sells iron ore to integrated steel companies in the United States (SPY).