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Chinese steel prices
As China (FXI) is the largest steel consumer, it’s prudent for investors in companies such as ArcelorMittal (MT), POSCO (PKX), Gerdau (GGB), and U.S. Steel Corporation (X) to keep track of Chinese steel demand.
In this final part of the series, we’ll look at the Chinese real estate, automobile, and manufacturing sectors.
Real estate indicators
Purchasing land is generally a prerequisite before building can occur. The land area purchased by Chinese real estate enterprises for future developments has fallen by more than 11.7% year-over-year (or YoY) in the first three months of 2016. However, the floor area under construction by real estate development enterprises has risen by 5.8% in the first three months of the year.
In the first three months of 2016, building sales have increased by 54.1% YoY in China. New construction starts have also risen by 19.2% YoY in the first three months after steadily declining for two years, as can be seen in the graph above.
China’s investment in fixed assets also rose by 10.7% YoY in the first three months of 2016.
Manufacturing activity
China’s manufacturing activity has shown signs of improvement in 2016. China’s manufacturing PMI (purchasing managers’ index), as estimated by Caixin, was 49.7 in February, which is a one-year high. The country’s trade data was also quite robust last month, with exports increasing by 18.7% YoY.
Looking at the automobile sector, in the first three months of the year, 5.6 million passenger cars were sold in China, a YoY increase of almost 7%. China’s car sales have received a boost from the sales tax cut announced by ts government in September 2015.
Although Chinese steel demand indicators have shown a sharp turnaround in 2016, many analysts see the big surge in Chinese steel prices as being unsustainable. If Chinese steel prices fall, as analysts such as Fitch are projecting, we could see its repercussions on the global steel markets as well. However, if the upturn in Chinese real estate industry is for real, steel bears could be in for even tougher times ahead.
Stay tuned to Market Realists’ Steel page for the upcoming earnings announcements.
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