China’s real estate climate index
In the previous parts of this series about steel, we revealed how construction activity is progressing in China. In this part of the series, we’ll analyze the trend in China’s real estate climate index.
This index measures the aggregate business activity in land sales and real estate. The index is useful for revealing trends in the Chinese real estate industry. Figures above 100 indicate economic growth, and readings below 100 indicate a slowdown in China’s real estate market.
Index drifts lower
The chart above shows the movement in China’s real estate climate index. As you can see, the index is on a downward trend. It stood at 92.43 as of the latest reading in May. This is a fresh multiyear low for the index. Apparently, it’s been below 100 since October 2011.
The decline in the real estate climate index is another indication 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 negative for the steel industry overall.
Steel companies including U.S. Steel Corporation (X), and ArcelorMittal (MT) are negatively impacted by the slowdown in China’s property market. Together, U.S. Steel Corporation and Timkensteel (TMST) form ~8% of the SPDR S&P Metals and Mining ETF (XME).
The automobile sector is the second-biggest steel consumer in China. In the next part of our series, we’ll analyze the latest trends in China’s vehicle sales.