Chinese real estate struggle, crude steel confusion

There were some notable trends in the most recent round of Chinese activity data beyond the usual headlines on GDP.

In particular, real estate sales, construction and financing were all very weak in March.

Crude steel and pig iron production data were also soft in terms of reported growth rates, although it does appear that the NBS are now revising historical data.  This is important given the level of steel production in China is central to price forecasts for raw materials.

The weakness is real estate markets is really what sets the current period apart from last year, when the SHIBOR spike posed risks to activity.  Back then, sales and construction activity managed to stay strong.

This time around it appears that the squeeze on financing is now making a much more pronounced impact, with funding in particular being squeezed much more dramatically, with funding from deposits and advanced sales, along with "other sources" shrinking in the first 3 months of the year.

Crude steel data in the first 3 months of the year has become a bit more confusing thanks to an apparent revision to historical data (although these changes aren't published).

Crude steel production was up 2.2%YoY in March, although the level was higher than growth rates suggest using last years data. Indeed, it would appear that Jan/Feb data have been revised as well.

Pig iron production was weaker again, falling YoY in March after very small gains in Jan/Feb.

Crude steel production rates are slow, although are a bit faster than what is implied by the CISA data, which grew 0.6%YoY.

And while there is usually a large difference between the CISA and NBS in Jan/Feb, it has historically not been as large in March as it was this year.

This poses problems for the CISA data in the months ahead, as it uses the NBS data for its estimates of small mill production.  So we could get a sequential boom in the CISA data in April, which may also skew YoY growth.

The apparent revision of historical data also poses problems for many models of iron ore prices.  These are largely driven by how much Chinese iron ore will be required to satisfy steel consumption, given ongoing displacement by the seaborne market. With the level of consumption potentially higher in 2013, the estimated point at which seaborne supply displaces higher cost material will shift further out (see this post).

Does this mean we should be bullish on iron ore from here? I don't think so, because the construction outlook looks fairly troubling, even if production levels are currently high and raw material/steel inventories are not immediately horrible for prices.

It does, however, look like it will be a little trickier to navigate some of the data given the shifting goal posts.