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China’s Real Estate Climate Index Drops in April

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Jun. 3 2015, Updated 10:05 a.m. ET

China’s real estate climate

We’ve already seen how land area purchased by real estate developers for future construction has fallen steeply in the first four months of 2015. Building sales in China have also declined for 14 consecutive months. Now we’ll look at the April reading for China’s real estate climate index.

China’s real estate climate index measures the aggregate business activity for land and real estate. The index helps investors analyze trends in the Chinese real estate industry. Figures above 100 indicate economic growth. Readings below 100 indicate a slowdown in China’s real estate market.

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China’s real estate climate index drops lower

The above chart shows the movement in China’s real estate climate index. As you can see, the index has been on a downward trend. The index was at 92.5 in the latest reading in April, down from 93.1 in March. This is a fresh multi-year low for this index. The index has been below 100 since October 2011.

A negative sign

The decline in China’s 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. A slowdown in the Chinese real estate industry is a negative for the global steel industry.

Steel companies like U.S. Steel (X) and POSCO (PKX) are negatively impacted by the slowdown in China’s property market. U.S. Steel currently forms 3.9% of the SPDR S&P Metals and Mining ETF (XME). Worthington Industries (WOR) forms 3.4% of XME’s portfolio.

The automobile sector is the second largest steel consumer in China. In the next part, we’ll follow the recent trend in China’s automobile industry.

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