About 98% of all iron ore mined finds its way into steel production, and construction accounts for 50% of all steel consumed. So, to understand iron ore demand trends, it’s important to track construction activity, particularly China’s construction activity.
Tenth consecutive fall in building sales
The above chart shows that year-over-year sales of buildings in China fell for ten months in a row. Sales fell by 7.00% in November as compared to 0.83% in October. These figures are released on a monthly basis by the National Bureau of Statistics.
Housing prices down
Housing prices are an important gauge for understanding the direction of residential real estate activity in an economy. In China, housing prices fell for the seventh consecutive month in November as they declined 3.7% year-over-year. The decline was 2.6% year-over-year in October, despite easing government restrictions in the property market.
The China Real Estate Index System survey provides these figures on a monthly basis, based on a survey of 100 Chinese cities.
Construction indicators and iron ore demand
Building and housing prices indicate that construction activity in China still remains weak, despite government easing efforts. However, government efforts may eventually show results. As a result, a few more months’ worth of data are needed to get a clear sense of the trend.
Analysts suggest that property market weakness remains the single biggest risk facing the Chinese economy. The fallout is seen in the construction and steel industries. Similarly, it’s reflected in the price of iron ore and iron ore stocks, including those of Rio Tinto (RIO), BHP Billiton Limited (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF), as well as funds investing in iron ore stocks such as the SPDR S&P Metals and Mining ETF (XME).