Construction activity in China is shrinking against a backdrop of a government crackdown and cautious homebuyers waiting for the next steps.
The price of iron ore fell this week to the lowest level in 18 months, and other metals are also pulling back in the face of investor concern about the crisis in China’s real estate construction market.
A wave of bond selling is hitting the real estate sector in China as the Beijing government continues to pressure the debt-plunged sector. On Monday, the US Federal Reserve warned that the turmoil in China’s real estate sector could impact financial markets and affect global growth.
Construction activity in China is shrinking against a backdrop of a government crackdown and cautious homebuyers waiting for the next steps. While real estate giant Evergrande has dominated investor attention, the more widespread threat to “commodities” is the end of decades of builder expansion – which has driven demand the most.
“We see increasing risks to the Chinese real estate market, and consequently to demand for iron ore in the construction sector, due to Evergrande’s financial difficulties,” Fitch Solutions wrote in an emailed note. Further regulations for credit and on local government spending “will reduce the outlook for demand in construction and metals over the next three to five years,” the Fitch report stressed.
Iron ore has lost more than half its value since the highs of May this year in reaction to falling demand for steel in China due to a series of production restrictions by the government to control polluting emissions. Port stocks of the raw material have been growing, while last month the country’s imports fell to the lowest level since July.
Aluminum has also been losing ground after 13-year highs last month, penalized now by signs of relief from China’s energy shortages.
