Building sales in China
Previously, we saw that steel production increased 3.4% in February on a year-over-year (or YoY) basis. Now, we will analyze how steel demand indicators are shaping up in 2015. The construction sector accounts for more than half of China’s steel demand, using steel products like rebar, decks, and joists.
Steel Dynamics (STLD), Nucor (NUE), Gerdau S.A. (GGB), and Commercial Metals Company (CMC) produce these steel products. CMC currently forms 3.7% of the SPDR S&P Metals and Mining ETF (XME). Timken Steel (TMST), and Carpenter Technology (CRS) each forms 3.3% of XME.
Building sales fall
Building sales are widely tracked as an indicator of China’s real estate industry. The above chart shows the YoY change in building sales in China, which fell by 15.8% in February. Building sales in China have fallen in every month since February 2014, showing a clearly downward trend for China’s real estate sector. A slowdown in the Chinese real estate industry is a major risk for the global steel industry. A slowdown in domestic demand has led to higher steel exports from China.
The Chinese government announced several enticements for the housing sector, including an interest rate cut. However, these measures have yet to have any major impact on the country’s beleaguered real estate industry.
Property prices have also been weak in China. New home prices have fallen in 66 out of 70 top Chinese cities and in January, prices had fallen in 64 cities. This decline in real estate prices is a negative indicator for China’s real estate industry, and the fall in property prices negatively impacts investor sentiment.
We will discuss the Chinese real estate industry further in our next article.