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China’s Building Sales Improve in May, a Positive for Steel

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China’s building sales

We’ve already seen how China’s real estate climate index has been declining. Now let’s look at some other indicators of China’s real estate demand.

The construction sector accounts for more than half of China’s steel demand. The sector also needs iron ore. BHP Billiton (BLT) (BHP), Rio Tinto (RIO), Vale SA (VALE), and Cliffs Natural Resources (CLF) are major iron ore producers. Any significant change in growth in the construction sector impacts these companies. Cliffs Natural Resources forms 4.2% of the SPDR S&P Metals and Mining ETF (XME).

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Building sales increase

The above graph shows the year-over-year change in building sales in China (FXI). In May, building sales increased by 3.1% year-over-year. This is the first time since December 2013 that building sales have increased on an annual basis. In April, China’s building sales fell by -3.1% year-over-year.

Positive for iron ore miners

More building sales in China are positive for the global steel industry. The construction industry uses steel products produced by companies such as Nucor (NUE) and Steel Dynamics (STLD). More sales for steel companies translate into increased demand for iron ore.

Investors, however, shouldn’t look at building sales in isolation. You should consider all other real estate indicators to gauge a trend in construction activity.

We’ve looked at China’s property sector. Now let’s look at growth trends in China’s auto sales industry.

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