Steel Companies Feel the Heat from Chinese Slowdown
How Did the Steel Industry Fare in July amid Chinese Slowdown?
Chinese slowdown
In previous articles in the series, we noted that Chinese steel production came down 4.6% year-over-year in July. However, if you an investor in any of the mining companies (XME) including U.S. Steel (X), ArcelorMittal (MT), and Timken Steel (TMST), you should also pay attention to how the Chinese (EWH) steel demand is playing out. In this part, we’ll explore the recent indicators of Chinese steel demand.
Real estate indicators
Purchasing land is generally a prerequisite before building can occur. The chart above shows the land area purchased by Chinese real estate development firms. In the first seven months of the current year, real estate development firms purchased 121.13 million square meters of land. This represents a YoY (year-over-year) decline of 32%. The pace of the decline narrowed marginally compared to the previous month.
China’s real estate climate index also increased marginally in July, as the chart above shows. This index measures aggregate business activity in land sales and real estate. China’s real estate climate index has now inched up for two consecutive months. The index had fallen in each previous month since December 2013.
Building sales in China have now increased year-over-year for three consecutive months. Prior to this, China’s building sales had fallen for 14 straight months. Chinese investors again seem to be flocking to real estate with the correction in Chinese equity markets.
Though it might be early to comment, China’s real estate indicators could be bottoming out. Any uptick in Chinese real estate industry would benefit the global steel industry.
Vehicle sales
In July, China’s passenger car sales declined 6.6% year-over-year according to data released by the China Automotive Information Net. This is the second consecutive month that passenger car sales have fallen in China. The slowdown in vehicle sales in China is negative for the steel industry.
China’s steel exports have increased this year, as its domestic demand has slowed down. In the next part, we’ll explore how much steel China exported in July.
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