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China’s Industrial Output Growth Slows – Worst in over 6 Years

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Apr. 8 2015, Updated 12:05 a.m. ET

Industrial production

Industrial output measures the output of businesses involved in the industrial sector of the economy—including manufacturing, mining, and utilities. Fixed-asset investment, or FAI, is a measure of capital spending. It refers to any investment in physical assets, like real estate infrastructure and machinery, that are held for more than one year.

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Industrial output growth 

China’s industrial production increased by just 6.8% in first two months of 2015 compared to the the same period last year. This is its lowest gain in more than six years. It’s down from 7.9% in December 2014. It also fell way short of the median forecast of 7.6% from a Wall Street Journal survey of 14 economists.

Fixed asset investment slows down 

Annual growth in China’s urban FAI continued to slow down in 2015. This is in addition to the fall it experienced in 2014. It slowed down to 15.7% in 2014. It was 19.6% in 2013. For January and February, FAI grew by just 13.9% YoY (year-over-year). It also missed the expectations for a 15% rise.

Industrial health and iron ore companies

Industrial production and FAI are barometers of economic health. They slowed due to real estate weakness. More sustained growth needs to be seen before any meaningful positive impact can be expected for industries like steel. This has a direct impact on iron ore prices.

Iron ore prices affect companies like Rio Tinto (RIO), BHP Billiton (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF). It also impacts the SPDR S&P Metals and Mining ETF (XME). Cliffs Natural Resources forms 3.6% of XME.

The iShares MSCI Global Metals & Mining Producers ETF (PICK) is a good way to get exposure to the iron ore sector without choosing individual companies.

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