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Think China's Credit Crisis Is Over? Don't Look At This Chart

Tyler Durden's picture




 

The bailing out of the much-watched 'Credit equals Gold #1' wealth management product and safe liquidity-strewn (CNY375 billion from the PBOC) survival of the lunar new year liquidity crunch has many believing the worst is over. Though we discussed this fallacy in great depth here, the following chart of the total collapse in the largest Chinese coal producers says this is far from over. Trading at or below book values, investors are clearly signaling concerns about the quality of assets summed up perfectly by one local analyst - China's coal industry (whose loans back a massive amount of the wealth management products) is "dead."

 

Via Bloomberg,

Shares of China’s biggest listed coal producers have dropped to their lowest valuations on record as falling fuel prices make it harder to repay debt.

Bloomberg's chart above tracks the price-to-book ratio of China Shenhua Energy Co., China Coal Energy Co. and Yanzhou Coal Mining Co. Both China Coal and Yanzhou Coal trade below the value of their net assets, while Shenhua Energy has fallen to about 1 times book. The lower panel shows the CSI 300 Index’s energy gauge traded at a record discount to the MSCI All-Country World Energy Index last month.

 

Slowing economic growth and efforts to boost use of alternative fuels have dragged down coal prices in China, the world’s biggest producer and consumer of the fuel. The nation’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, two people with knowledge of the matter said last month, signaling government concern about possible defaults.

 

China’s coal industry is “dead,” said Laban Yu, a Jefferies Group LLC analyst in Hong Kong with an underperform rating on all three stocks. “There are 10,000 producers in China. A lot of them are taking on debt. It gets harder and harder to service debts when coal prices keep falling.”

 

China Coal warned Jan. 24 that 2013 net income will probably drop as much as 65 percent from a year earlier. The second-largest producer had 50 billion yuan ($8.3 billion) of net debt at the end of last year, from net cash of 6 billion yuan in 2011, according to a Barclays Plc note last month. The stock has tumbled 82 percent from its 2008 peak.

 

Declines in Shenhua, the listed unit of China’s No. 1 coal producer, have erased $178 billion of market value since the stock peaked in 2007 -- equivalent to the value of Bank of America Corp. Yanzhou Coal, the fourth largest, has dropped 80 percent from its 2011 high.

So, in summary, the PBOC had to bailout a 'small' wealth management product due to fears of contagion, which merely amplifies the future problems, and investors are pricing coal companies (which back a vast amount of shadow bank facilities) for major problems ahead... and the PBC had to pump CNY 375 billion in last week just to prop up the banks through the new year...

 

But apart from that - yeah, China's credit crisis must be over because US equities are up for 3 days...

 

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Tue, 02/11/2014 - 23:28 | 4426659 superflex
superflex's picture

Because Obama.

Edit... The FED too

Wed, 02/12/2014 - 01:28 | 4426996 AngelEyes00
AngelEyes00's picture

I know this is off topic, but WTF is with this Olympic coverage?  Talk, talk, up too close and too personal, ads, talk, ads, show somene's face getting ready to do an event (event though it's pre-recorded and we really don't need to wait for nothing) then talk, talk, talk, a competitor, ads up the ass, a competitor, talk,

How about this:  Competitor after competitor until an event is finished, ads, next event. 

Wed, 02/12/2014 - 11:09 | 4427862 Buckaroo Banzai
Buckaroo Banzai's picture

The Olympics jumped the shark back in the early 90s.

Wed, 02/12/2014 - 01:40 | 4427015 DoChenRollingBearing
DoChenRollingBearing's picture

Debt is a killer, avoid it as much as you can.

Tue, 02/11/2014 - 23:32 | 4426662 LetThemEatRand
LetThemEatRand's picture

This is not possible.  It is a country of low wages, no labor laws, and non-existent pollution control.  Everyone knows that this is a formula for long-term success for coal.

Wed, 02/12/2014 - 03:24 | 4427142 thestarl
thestarl's picture

Another problem they're facing LTER is water scarcity in their major coal provinces and coal prep washing process uses plenty as does mining the shit

Wed, 02/12/2014 - 08:49 | 4427441 new game
new game's picture

this wall of worry is lacking footholds and pegs...

Wed, 02/12/2014 - 13:46 | 4428530 rosiescenario
rosiescenario's picture

...and some evil soul applied AstroGlide to it....

Tue, 02/11/2014 - 23:33 | 4426673 Wahooo
Wahooo's picture

WTF Tylers, you're running obamacare ads??? Get that shit off your site.

Tue, 02/11/2014 - 23:36 | 4426682 Tasty Sandwich
Wed, 02/12/2014 - 00:06 | 4426776 Mister Kitty
Mister Kitty's picture

China's always been a myth.  Tits.

Wed, 02/12/2014 - 00:44 | 4426884 NoDebt
NoDebt's picture

Everything is a myth.  You believe it or your don't.  Most do.

Wed, 02/12/2014 - 02:02 | 4427048 Jadr
Jadr's picture

A mindless post on every article, merely to pimp your shitty blog.

Tue, 02/11/2014 - 23:37 | 4426677 Overleveraged_a...
Overleveraged_and_Impatient's picture

It seems like China's basically doing what we're doing. Propping up a fake economy with artificial money. The difference is they are also collecting all the gold while we are not.

Tue, 02/11/2014 - 23:38 | 4426681 TheRideNeverEnds
TheRideNeverEnds's picture

So whats the worst that could happen?  We print a few bad numbers, Yellen quadruples QE by implementing direct daily purchases of e-minis; ES goes up 200 points on the news and we continue moving upwards to infinity and beyond.  

Tue, 02/11/2014 - 23:51 | 4426719 Carpenter1
Carpenter1's picture

Wrong. The ride is ending because investors will not pay 40X earnings, at least not halfway intelligent investors. That would be the ones with 8 digits in their accounts. The dumbass permabulls who think the DOW is going to 100k will be left holding the bag.

Tue, 02/11/2014 - 23:54 | 4426731 TruthInSunshine
TruthInSunshine's picture

40x earnings? Where can I find such a steal? Have you priced Salesforce.com, Amazon, Priceline, Twitter, FaceFarce, etc., lately?

Wed, 02/12/2014 - 01:09 | 4426945 TheRideNeverEnds
TheRideNeverEnds's picture

Exactly, and watch what Tesla does next week when they report some shitty earnings of like 5 cents per share and the stock gaps up 50% higher because with the carbon credits it was not a negative number...

 

This market decoupled from any semblance of reality long loong ago.  Its just about chasing momentum and where to put the billions upon billions in FED paper every month. 

 

Tue, 02/11/2014 - 23:38 | 4426688 chump666
chump666's picture

"Black coal is Australia’s second-highest export commodity and Australia is the world’s leading coal exporter"

http://www.australiancoal.com.au/exports.html

I wonder how Australia will be bailed out?  The IMF are broke.

Tue, 02/11/2014 - 23:48 | 4426713 Ness.
Ness.'s picture

I wonder how Australia will be bailed out?

 

'Hop on Down(under) to Mickey D's for the new Roo-Tastic-Burger! (TM).

 

Problem(s) solved.


Wed, 02/12/2014 - 03:22 | 4427148 thestarl
thestarl's picture

Steve Keens long held views on the Australian property market may yet come to fruition and our four big banks have massive exposures to the Oz property bubble

If China hits the wall we're fucked

Tue, 02/11/2014 - 23:54 | 4426732 Son of Loki
Son of Loki's picture

They'll just print moar RMB.

Wed, 02/12/2014 - 00:00 | 4426756 The Wisp
The Wisp's picture

Everybody who owns a Business in China, runs a Pozzi scheme on the side, by borrowing money for their  ( business ) and lending it out at interest.       This Will Not End Well is an Understatement

Wed, 02/12/2014 - 00:11 | 4426788 ThirdCoastSurfer
ThirdCoastSurfer's picture

Coal is dead? 10,000 producers? Dream on. Coal is the main cooking feul of the probably 1 billion Chinese that still cook over an open hearth.  

 

http://www.foodsafetynews.com/2011/01/harmful-hearths-open-fire-cooking-...

Wed, 02/12/2014 - 00:33 | 4426856 FreedomGuy
FreedomGuy's picture

The energy industry in China is owned and controlled by the State. It may transform but it will be supported.

Wed, 02/12/2014 - 04:22 | 4427204 ebear
ebear's picture

Different kind of coal used for cooking (lignite)

The coal talked about here is thermal coal, used to produce electricity.

What it means is that electricity demand is falling...

and the main consumers of electricity are:

heavy industry and manufacture.

Check out US numbers for comparison

http://www.eia.gov/coal/production/quarterly/ 

 

Wed, 02/12/2014 - 13:51 | 4428549 rosiescenario
rosiescenario's picture

....and coal imports are coking coal which is a good measure of steel output....you appear to be one of the few here that knows about this industry.

 

All in all this article is one of the most telling ones I've come across in about the last 6 months....it is probably the best "canary in the coal mine" for China's economic future.

Wed, 02/12/2014 - 16:54 | 4429485 ebear
ebear's picture

The US also exports thermal coal.  The numbers on that site would likely show a sharper decline if not for the Fukushima disaster which increased demand for thermal coal in Japan.

Keep an eye on basic commodities as they are often leading indicators of economic performance.  That said, there's a wild card in the equation with regard to China.   Not all commodities shipped to China are immediately consumed.  Some materials may be stockpiled and used as collateral for loans.  This is true of copper, probably coal as well - anything that stores cheaply and doesn't degrade could in principle be used this way.

The question then is, what happens when financial pressures force the loans to be called, bearing in mind that the underlying collateral is not very liquid, and in some (many?) cases may have multiple claims against it.

Wed, 02/12/2014 - 07:25 | 4426794 Cacete de Ouro
Cacete de Ouro's picture

.

Wed, 02/12/2014 - 00:19 | 4426814 Missiondweller
Missiondweller's picture

Oh, no worries, China just printed a 10% increase in exports! Problem solved!

http://www.cnbc.com/id/101409067

Which totally makes sense after they just recorded a drop in manufacturing (and less need for coal).

And heck, they wouldn't lie, right?

Wed, 02/12/2014 - 01:12 | 4426952 disabledvet
disabledvet's picture

http://www.youtube.com/watch?v=9E-WasNzVpI

And in case anyone was wondering it was that bassist who not only wrote this song...but handled the finances as well.

"always make sure the bassist handles the finances."

Wed, 02/12/2014 - 01:49 | 4427029 Johnny Cocknballs
Johnny Cocknballs's picture

jesus, think mid term.

falling fuel prices = good.

demand for energy is still strong.

The Chinese have a long view that involves gold, the bamboo network, and not fighting the US Navy but making it unsafe for our navy anywhere near their shores. Rumors of the Chinese economy's demise are exaggerated. The collapse of fiat is not a complicated matter, it's baked in, and the drive to expand "GDP" and trade fiat for assets has accelerated this.  China is better prepared than the US for the global reset, and the US govt knows it.   Which is why war is likely... the wrinkle is the powerful minority demanding a war with Iran first. 

 

I may be wrong, of course.

 

Wed, 02/12/2014 - 02:29 | 4427089 U4 eee aaa
U4 eee aaa's picture

The coal industry is dead? Where am I going to go for Beijing smog now?

Wed, 02/12/2014 - 05:08 | 4427228 Rising Sun
Rising Sun's picture

Considering these fucking communists POMO three times what the US does, why the fuck isn't China's GDP bigger than the US by now.

 

Stupid fucking communists - if you're going to cheat, do it to win.

Wed, 02/12/2014 - 09:08 | 4427459 AdvancingTime
AdvancingTime's picture

The problems in China are far from over. Currently the 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown after the 2008 meltdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms as companies struggle to repay loans on newly built factories that sit idle because of weak demand. More below,

http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-de...

Wed, 02/12/2014 - 09:17 | 4427472 andrewp111
andrewp111's picture

Declining energy prices will just keep the global muddle-through expansion going longer. The PBOC can always bail out until imported energy costs spike to unsustainable levels. Nothing to see here, move along.

Wed, 02/12/2014 - 11:42 | 4427958 abatis
abatis's picture

The winter storms in the USA are delaying demand for Chinese products produced from their filthy coal. Thus the slow down in thier various coal asset indexes. It's the weather - the latest newspeak for central planning slowdowns.

Wed, 02/12/2014 - 12:43 | 4428229 lolmao500
lolmao500's picture

But but but ! The government says the growth is 7%!!! If they say it's 7%, it means it's true!

Wed, 02/12/2014 - 13:06 | 4428337 profitsource
profitsource's picture

To say the Chines coal industry is dead is premature given that it imports 300 million mtpa and consumes in total 3.5bn mtpa. Shenhua has been hammered but it still dictates domestic pricing through its contract pricing which in effect sets the price of which China pays for imported coal. To say Shenhua is dea would be saying all mining companies with coal sectors is dead. Coal is still the dominant fuel and will continue to be.

http://www.coalcandothat.com/

Wed, 02/12/2014 - 13:51 | 4428558 rosiescenario
rosiescenario's picture

...that'd be coking coal for steel manufacure....this article is about coal for electric production....thermal coal.

Wed, 02/12/2014 - 13:56 | 4428573 rosiescenario
rosiescenario's picture

This has to be the largest dead canary in a coal mine.....it not only could be the first domino in the debt daisy chain to fall but it is a complete tell on the overall economy as it correlates to electric production.

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