China’s Slowdown Could Be the Biggest Risk for Steel in 2019

Steel Companies’ 2019 Outlook: Can the Winning Streak Continue? (Continued from Prior Part) ## China’s slowdown China is the world’s largest steel producer, consumer, as well as exporter. Over the last few months, we’ve seen a flurry of soft economic data from China (FXI). From the perspective of steel companies (MT), the slowdown has been quite significant in the real estate and automotive sectors, which happen to be the two largest steel end consumers. ## Stimulus While China has been talking about monetary and fiscal policy initiatives to lift its economy, it has shied away from stimulus for the housing and automotive sectors. As for the housing sector, it seems quite unlikely that China would look at a specific package, as the country has been trying to address property speculation. However, a relief package for the automotive sector might still be expected. In 2015 also, China had lowered its purchase tax on cars to provide a boost to sagging vehicle sales. The purchase tax was gradually increased and was restored at the original level of 10% last year. ## Demand As Chinese steel demand has faltered, Chinese steel prices have come under pressure. Falling Chinese steel prices have had a domino effect on global as well as US steel prices. Now, while China’s slowdown is a known factor, the steps taken by China to bolster its economy could drive steel prices this year. Investors in US steel and iron ore companies like U.S. Steel (X), AK Steel (AKS), and Cleveland-Cliffs (CLF) should closely follow the policy steps taken by the Chinese government including its supply-side reforms. Meanwhile, even with the known headwinds, US steel stocks might look attractive from a valuation standpoint. We’ll discuss this more in the next and final article. Continue to Next Part Browse this series on Market Realist: * Part 1 - Steel Companies’ 2019 Outlook: Can the Winning Streak Continue? * Part 2 - Are We Seeing a Typical Dead Cat Bounce from Steel Stocks? * Part 3 - What Should US Steel Investors Watch Out for in 2019?