Tracking steel production
Since 98% of mined iron ore goes into making steel, it’s important to track steel production. This helps decipher iron ore demand trends.
China consumes two-thirds of seaborne iron ore. So, tracking China’s steel demand is a must for investors who want to understand what drives iron ore demand.
Crude steel output
The National Bureau of Statistics of China releases China’s crude steel output on a monthly basis. The data shows that Chinese crude steel production for February was 65 million tons—compared to January’s 65.5 million tons. It’s a decline of 0.7% month-over-month. However, it’s an improvement of 4.8% YoY (year-over-year).
Steel mills are limiting iron ore production due to weak demand. The cooling property market is the major factor weighing on steel demand in China. We’ll look at these factors separately later in this series.
Steel production outlook
Going forward, China’s steel demand isn’t expected to grow much higher. China’s major sectors are facing a slowdown. This includes construction. China’s rate cut could help spur some demand. Overall, the situation remains negative for the time being. The decline will dent iron ore demand. Combined with constant oversupply, iron ore prices will likely decline moderately.
Lower crude steel output would impact the iShares MSCI Global Metals & Mining Producers ETF (PICK). BHP Billiton, Rio Tinto, Vale, and Fortescue Metals Group form 32.2% of PICK’s holdings.
For a broader approach toward investing in the steel sector, look at the SPDR S&P Metals and Mining ETF (XME). Cliffs Natural Resources makes up 3.6% of XME’s holdings.