The strength or otherwise of the Chinese property market is set to have far-reaching implications for the global economy this year.
Rather than relying solely on official statistics, however, those looking for an indication of the performance of the Chinese construction sector might want to direct their attention to the world's steelmakers.
The risk for steel producers across the globe is growing as a year-long rebound in China's property market market deepens, exposing bullish sentiment as overblown, according to a US-based hedge fund manager and former Citigroup Inc. analyst.
"China's real estate sector is the biggest X-factor for the steel market globally this year," Ivan Szpakowski, chief investment officer at Academia Capital LLC, said in a phone interview from North Carolina last week.
"We've clearly turned the corner into a downward phase of the [Chinese] property cycle, and I do think there is a real risk for steel that we go back toward where we were a year ago," he added.
Steel and iron ore surged in 2016 after a poor start as China's 'old economy' roared back with the help of government stimulus and a credit boom. At the heart of the rebound was a pick-up in construction that helped steel demand expand about 2pc last year, versus expectations of a 5pc to 6pc. decline, according to Mr Szpakowski.
Construction accounts for the biggest part of steel demand in the top consumer markets, according to Bloomberg Intelligence.
China's home prices have shown signs of slowing as local governments and banks follow Beijing's orders to tighten the market and rein in asset bubbles.
President Xi Jinping and his top economic policy makers are pledging prudent and neutral monetary policy and greater focus on deflating asset bubbles as they work to ensure stability in the lead up to a twice-a-decade Communist Party congress later this year, when members of the nation's top leadership committee are expected to be replaced.
Chinese home prices increased last December in the fewest cities since January of last year, in an indication that property curbs introduced by the govenrment to deflate a potential housing bubble are taking effect.
New-home prices, excluding government-subsidised housing, registered gains last December in 46 of the 70 cities tracked by the Chinese government, compared with 55 the previous month, according to the National Bureau of Statistics.
"Overall the market is cooling down, even as sales volumes didn't contract as much as we expected," Alan Jin, a property analyst at Mizuho Securities Asia Ltd in Hong Kong, said before the report was released. "It will take time, probably several months, for buyers to feel the gradual crunch of liquidity."
Against that backdrop, stockpiles of iron ore at China's ports have expanded at an "unprecedented" pace since the start of this year, Mr Szpakowski noted.
Iron ore inventory at China's ports rose to a record 127 million tonnes last week, according to Shanghai Steelhome Information Technology Co., while stockpiles of reinforcement bar used in construction surged to 8.2 million tonnes, the highest since April 2014.
"We're much more leveraged now than we've been in two years, in terms of inventory throughout the whole supply chain, whether it's traders or steel mills, or whether it's iron ore or steel," said Mr Szpakowski, who previously worked in Shanghai, Hong Kong and Singapore as a commodities analyst for Citigroup and Credit Suisse Group SA.
China's steel market has gotten "too optimistic" on demand and the potential benefit of capacity cuts, including the clampdown on some scrap-based mills this year, he said.
That's a warning to steel producers and miners that have enjoyed a market rebound after years of fighting losses and oversupply. China's steel export prices jumped more than 90pc last year, spurring gains in world markets even as shipments stayed historically high at more than 100 million tonnes. Iron ore has doubled in the past year and was at $91.71 a tonne in Qingdao Tuesday, near the highest since August 2014.
Futures in Dalian were little changed.
To be sure, there remain supportive drivers for steel.
Chief among them is the Chinese government's desire for stable growth ahead of a leadership reshuffle at the ruling Communist Party's National Congress in the second half of 2017. That should mean "another good year" for infrastructure spending and no aggressive action, yet, on monetary tightening, Mr Szpakowski said.
Not everyone is bearish on real estate. Indeed, property-development investment, which tracks builders' investment in construction and land development, rose 11.1pc last December from a year earlier, up from a 5.7pc gain last November, according to Bloomberg calculations based on National Bureau of Statistics data.
Plus, despite developer valuations being near a historical trough, contracted sales at leading firms are expected to jump another 15pc this year from a record 2016, thanks to their positioning in metro areas and stable home prices even with tightening, according to Citigroup analysts.