Just when you thought China might be back on track, a key economic indicators suggests the opposite is coming down the pike.
Recently the price of iron-ore slumped, indicating that demand for this key ingredient in steel making is slipping as well. Recently one metric ton of the or would fetch $116, down more than 25% from almost $160 in early March, according to data from TradingEconomics. That’s quite a tumble.
As the largest maker of steel, China is also by far the largest buyer of iron-ore, and so when prices are slipping it strongly suggests that China isn’t buying as much iron-ore as it normally does. In 2020, the communist country produced 57% of all steel or around 1.1 billion tons, according to World Steel Association data. No other country comes close.
Typically when China’s steel production falls then its economy stalls. We saw this back in mid 2015 when its output of the metal dropped for the first time in more than three decades. The resulting fallout came in August when the Chinese stock market took a tumble and shook other securities markets around the globe.
The question now is what will happen next in China. Likely there’ll be further softness in the economy. If the the price of iron-ore remains soft or even falls further then its a clear sign that China isn’t planning on its usual output of steel.
That matters because steel has long been the lifeblood of that country’s economy. Teh huge real estate construction that has happened over the past two decades required steel for building skyscrapers, factories and dwellings across the massive Asian country. Steel has also been needed as feedstock for the country’s huge manufacturing industry which produces key components for automobiles across the globe.
What’s shocking here is that while China is in midst of undoing some of its recent COVID-19-related lockdowns that brought vast swathes of the communist country to an economic standstill. If those locked-down cities were now getting back to work, then why aren’t we seeing signs of an industrial resurgence?
So far, that’s not clear. If things were getting back to any form of normal then we should see demand for iron-ore creep up and along with it the prices of the mineral should rally. Investors in Chinese stocks or even those listed in Hong Kong should remain cautious until we see evidence of a real recovery.