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Chinese Construction Industry Is A Key Driver For Steel Industry

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Dec. 24 2014, Updated 5:26 p.m. ET

China’s construction industry

In the previous part of this series, we saw that China accounts for almost half of global steel consumption. Its construction sector is the biggest steel consumer in China. It accounts for more than half of China’s steel consumption. This basically means the Chinese construction industry accounts for almost a quarter of global steel consumption.

This is why Chinese construction industry indicators are followed closely by investors in ArcelorMittal (MT), U.S. Steel Corporation (X), Nucor (NUE), and Steel Dynamics (STLD). Currently, Nucor (NUE) and Steel Dynamics (STLD) are among the top holdings of the SPDR S&P Metals and Mining ETF (XME).

Please be aware that China’s construction industry includes residential, nonresidential, and civil construction. The growth in the real estate industry, accompanied by infrastructure investment by the Chinese government, were the key drivers of China’s steel consumption.

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Chinese ghost towns

While a lot of infrastructure creation has taken place in China’s cities, a lot of images of the so-called ghost town keep emerging. The image above is an example of these towns. There are buildings and roads, but no people.

A lot of these cities were created to boost the local economies. Please note that the real estate sector has a trickle-down effect on the economy of a country. It benefits the steel, cement, and construction industries. Since these industries employ a lot of labor, China was able to provide employment opportunities to its citizens through these infrastructure investments.

China has slowed down

The growth rate in China has come down. In the coming parts of this series, we’ll analyze several indicators of the Chinese construction industry. This will help you better understand the health of this key industry.

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