What’s going on here?
China’s property market struggles are weighing down iron ore and steel prices, even though China’s economy beat expectations for growth.
What does this mean?
Iron ore and steel prices are caught in a tug-of-war with China’s economy sending mixed signals. The GDP growth of 4.6% in the third quarter exceeded the expected 4.5%, yet the property sector is dragging its heels. New home prices are dropping at their swiftest pace since 2015, and investors are let down by the lack of major stimulus measures. This caution is palpable on the Dalian Commodity Exchange, with January iron ore contracts slipping 2.59%. Meanwhile, China’s crude steel production saw a four-month decline, dropping 6.1% year-on-year in September. These trends highlight a delicate balance within China’s industrial scene.
Why should I care?
For markets: Steel’s shaky foundation.
China’s pivotal role in the global steel market exposes it to vulnerabilities amid current weaknesses. The dip in crucial steelmaking inputs on the Dalian Commodity Exchange and declining benchmarks on the Shanghai Futures Exchange pose potential risks for investors in steel-linked sectors. With real estate demand waning, sectors vital to China’s growth are under scrutiny, possibly impacting global market sentiment.
The bigger picture: Property sector tests economic resilience.
China’s housing hurdles spotlight broader concerns about its economic model’s heavy reliance on real estate for growth. ANZ analysts suggest that current policies intended to trim housing inventory might miss the mark without substantial new stimulus. As the property sector stumbles, China’s integration into the global economy calls for fresh innovation and adaptation to maintain overall economic vigor.
