Iron Ore Price = Chinese Real Estate FAI
If you care about the outlook for the iron ore price then you care about the outlook for the Chinese property market. A simple analysis shows that a major driver, if not the major driver, for the iron ore price is the pace of growth in real estate fixed asset investment in China. The chart below from the latest weekly report makes this clear.
The trouble is a couple of our leading indicators are pointing to a slowdown in property prices in China. This along with still relatively high inventories of completed properties means, as a minimum, the upside for real estate fixed asset investment growth is logically capped. But if property prices rollover, as they look like they will, it could mean a renewed slump in property investment and by extension demand for iron ore. So we may well see the lows tested in the coming quarters ahead.