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Chinese Steel Demand Indicators Have Faltered

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Chinese steel demand indicators

Previously, we saw that Chinese steel production has fallen 3.1% year-over-year (or YoY) in October. However, if you’re an investor in any of the steel companies (XME), including Commercial Metals (CMC), Gerdau SA (GGB), and TimkenSteel (TMST), you should explore how the Chinese (FXI) steel demand is playing out.

The construction sector is the biggest steel consumer in China, accounting for more than half of steel consumption in the country. In this part, we’ll explore the recent indicators of the Chinese real estate sector.

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Real estate indicators

  • Purchasing land is generally a prerequisite before building can occur. In the first ten months of the current year, Chinese real estate development firms purchased 178.5 million square meters of land. This represents a YoY decline of 33.8%. The pace of the decline is similar to the previous month.
  • The floor area under construction by real estate development enterprises rose 2.3% in the first ten months of the year. However, this is 0.7 percentage points lower over the first nine months of the year.
  • China’s real estate climate index fell marginally in October, as you can see in the above graph. This index measures aggregate business activity in land sales and real estate. China’s real estate climate index has now fallen two consecutive months after briefly inching up in the previous three months.
  • Building sales in China increased 12.6% in October. On a year-to-date (or YTD) basis, building sales have increased by 14.9% in China. However, this is lower than the 15.3% growth in the first nine months of the year.

Although one month of data might be inconclusive, October Chinese real estate indicators point to a further slowdown in the country’s construction activity. The steps taken by the Chinese government to arrest the slowdown seem to be waning. However, the country’s automotive sector has been buoyed by the sales tax cut, as we’ll see in the next part of the series.

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