What is going on here?
Despite China’s economic growth exceeding expectations, struggling real estate markets are weighing on iron ore and steel prices.
What does this mean?
Iron ore and steel prices are caught in a tug-of-war with the Chinese economy, which is sending mixed signals. GDP growth in the third quarter was 4.6%, higher than the expected 4.5%, but the real estate sector was holding it back. New home prices are falling at the fastest pace since 2015, and investors are disappointed by the lack of major economic stimulus. This sense of caution was also evident on the Dalian Commodity Exchange, where iron ore contracts fell 2.59% in January. Meanwhile, crude steel production in China decreased by 6.1% in September compared to the same month last year, the fourth consecutive month of decline. These trends highlight the delicate balance in China’s industrial scene.
Why should we care?
For the market: The unstable foundations of steel.
China’s important role in the global steel market is exposed to vulnerability amid current weakness. The drop in Dalian Commodity Exchange’s key steel inputs and the Shanghai Futures Exchange benchmark pose potential risks for investors in steel-related sectors. A sector critical to China’s growth is under scrutiny as real estate demand declines, potentially impacting global market sentiment.
The big picture: The real estate sector tests the resilience of the economy.
China’s housing crisis highlights broader concerns about the country’s economic model, which relies heavily on real estate for growth. ANZ analysts have suggested that current policies aimed at reducing housing stock may miss the mark without new substantial economic stimulus. As the real estate sector stumbles, China’s integration into the global economy requires new innovations and adaptations to maintain the overall vitality of the economy.
