China real estate climate index
Previously, we discussed how land area purchased by real estate developers in China for future construction activity has fallen steeply in the first three months of the current year. In this part, we’ll look at the China real estate climate index.
The China real estate climate index was developed by China’s National Bureau of Statistics. The index is updated on a monthly basis, and it measures the aggregate business activity for land and real estate. The index is useful in analyzing the trend in the Chinese real estate industry. Figures above 100 indicate economic growth, while readings below 100 indicate a slowdown in China’s real estate market.
The previous chart shows the movement in the China real estate climate index. As you can see, the index has been on a downward trend. The index was at 93.1 in the latest reading in March, down from 93.7 in February. This is a fresh multiyear low for this index. The index has been below 100 since October 2011.
Fall in index is a negative sign
The decline in the China real estate climate index is another indicator that construction activity has slowed down in China (FXI). China’s real estate sector is a key driver of global steel demand. China’s construction industry accounts for more than a quarter of global steel consumption. The slowdown in Chinese real estate industry is negative for the global steel industry.
Nucor (NUE) and Commercial Metals Company (CMC) get a major part of their revenues from the nonresidential construction industry. Nucor currently forms 2.60% of the Materials Select Sector SPDR ETF (XLB). Allegheny Technologies (ATI) forms 0.5% of XLB.
The automobile industry is the second biggest steel consumer in China. In the next part, we will analyze the latest indicators of China’s automobile industry.