Chinese steel demand indicators
On Wednesday, China (FXI) released its 1Q GDP (gross domestic product) figures, which came in at 7%, the lowest growth rate since 1Q09. The data, however, came in as per market expectations. One of the reasons behind the slowdown in the Chinese economy has been the country’s beleaguered real estate sector. Real estate is the key driver of economic activity in China. Real estate supports industries like steel and cement, and generates jobs both directly and indirectly. Real estate activity is a key indicator of Chinese steel demand.
The construction sector accounts for more than half of China’s steel demand, as it uses steel products like rebars, decks, and joists. Steel Dynamics (STLD), POSCO (PKX), and Commercial Metals Company (CMC) produce these steel products. STLD currently forms 3.7% of the SPDR S&P Metals and Mining ETF (XME). Schnitzler Steel (SCHN) forms 1.14% of XME.
Building sales fall
Building sales are widely tracked as an indicator of China’s real estate industry. The previous chart shows the year-over-year (or YoY) change in building sales in China. As you can see, building sales fell by 9.3% in March. They had earlier declined by 15.8% in February, their worst monthly drop in three years.
Building sales in China have fallen in every month since February 2014. The trend is clearly downward for China’s real estate sector. Slowdown in the Chinese real estate industry is a major risk for the global steel industry. Slowdown in domestic demand has led to higher steel exports from China.
There are several other indicators of Chinese real estate industry that investors should track, which we’ll discuss in detail in our next part.