China’s property sector
Real estate directly impacts 40 other sectors in China. It’s important for iron ore investors to track China’s real estate growth (TAO), as this sector accounts for the majority of steel consumption in China. The sub-index for activity growth in China’s construction sector grew to 62.5 in July 2017—the highest level for this metric since December 2013.
In this article, we’ll see if the same optimism was also evident in the other property market indicators.
Home prices in China rose in fewer cities in July compared to June. While new home prices had risen in 60 cities out of 70 in June, the number had dropped to 56 in July.
In our view, this is most likely the outcome of the crackdown of Chinese regulators on property purchases to avert a pricing bubble in the housing market. The prices in the second- and third-tier cities grew at the slowest pace in five months.
Investment in fixed assets in China rose 8.3% in the first seven months of 2017, down from 8.6% growth in the first six months of the year. This trend is also below economists’ forecasts, which expected the growth pace to remain steady. According to Reuters, the growth in property investment cooled down to 4.8% in July year-over-year (or YoY) compared to 7.9% YoY in June.
New construction starts, measured by floor area, also contracted for the first time since September 2016. This metric fell 7% YoY in July.
Although China’s property market growth showed a marked slowdown in July, we might need a few more months of data to establish any trend. Meanwhile, higher steel prices are supporting seaborne iron ore prices for now. This, in turn, supports miners such as BHP Billiton (BHP) (BBL), Vale (VALE), Rio Tinto (RIO), and Cliffs Natural Resources (CLF).