Measuring the Chinese property hit to iron ore

From Mac Bank today:

What is going on in China’s property market? High-frequency data on property sales suggest that the recent weakness is more than just seasonality and that the official national sales figures for January-February, due early March, could see a large YoY drop.

Daily sales figures are available for major tier-1 and tier-2 cities, and one can foresee the direction of national sales growth (Fig 1), as both our 12-and 16-city samples since the start of 2013 have exhibited a strong correlation with national sales growth. In January they were 20-30% lower YoY, a significant drop, and extrapolating it seems national sales growth will come in weaker than its 0.7% YoY contraction in December 2013.

…So far this year, however, the level of sales has been much below that in 2013 and 2011, and is more comparable to the case of 2010, when national sales volume was 24% smaller than last year. (It remains higher than 2012, which was exceptionally weak as a result of policy changes).

And the implications for steel, roughly 40% of which goes into construction?

Steel, for which construction is the largest individual end user, will certainly feel the blast directly. However in our steel demand model we have already factored in a slowing property sector for this year as the growth in 2013 was bolstered by a weak base in 2012 and the release of pent-up demand from 4Q12. We are forecasting 4% YoY growth for steel and metals demand in property construction in 2014, compared to 6% YoY in 2013.

As I said earlier in the year, some support for steel from property. Sales peaked last September and incorporating a construction lag the activity will fade as the year wears on…