This page has been archived and commenting is disabled.
Chinese Commodity Crash Continues, But Pigs Are Flying
When it comes to keeping track of China's economy, one can listen, and ignore, the official goalseeked and made-up-on-the-fly data released by the government, or one can simply observe the price dynamics of the all-important Chinese commodities sector (because with fixed investment accounting for well over 50% of GDP, the marginal price of the commodities that are used in capital investment tell us all we need to know about the true state of the Chinese economy). It is here where we find that contrary to the recent performance of the Shanghai Composite, which has been trading exclusively on the coattails of the most recent unofficial QE by the PBOC, commodity prices in China are actually crashing across the board, which in turn suggest that the real GDP is most likely anywhere between 20% and 60%, if not more, below the "official" 7.5% GDP print.
Here are the charts, alongside some commentary from Bank of America:
Last week, Qinhuangdao (QHD) 5,500k thermal coal price was at RMB480/t, unchanged from the week prior. QHD coal inventory decreased to 5.6mt, down 0.5% wow.
In August, growth of daily coal consumption at 6 major IPPs dropped by 22.5% yoy, down from the -16.3% yoy in July.
Rebar price was RMB3,058/t, down 1.1% wow. Rebar inventory in 34 major cities was at 5.47mt, down 1.9% wow. Concerns about the property market and relatively high steel production are still weighing on steel prices.
Iron ore price was US$88.0/t, down 1.9% wow. Iron inventory at Chinese ports was 112mt, up 1.4% wow. Iron ore prices have been under immense pressure since the beginning of the year and are likely under continuous pressure from the weak housing market.
National average cement price was RMB347.5/t, down 0.9% wow.
That said, for the inflation watchers, there is some good news: pigs are flying! "Last week, national average pork prices increased by 2.3% from the previous week to RMB23.3/kg. Meanwhile, the hog-to-corn price ratio edged up to 5.57 compared to a breakeven point of 6 for pig farmers."
Actually did we say, "good news"... in a contracting economy, the last thing China can afford is surging food prices from the most prevalent protein. Keep a close eye on this as should pork prices approach or take out 2011 highs just RMB5 higher from here, the events from the Arab Spring will be due for a quick and violent comeback.
* * *
Finally, for the data purists, here are the three most "representative" charts: electricity, rail and autos.
»
- 11853 reads
- Printer-friendly version
- Send to friend
- advertisements -
Here in Thailand things are coming apart fast!
Optimist. The sooner it does, the sooner we can get on with real valuations and a real recovery.
Don't hold your breath.
"which in turn suggest that the real GDP is most likely anywhere between 20% and 60%, if not more, below the "official" 7.5% GDP print."
But still a positive number, which is part of the reason I don't think it's correct.
I need to study more...
China Subsidizes Oil, Gas & Coal? So would it subsidize Steel Rebar as it has been building ghost cities.
And the PBOC, how do they set rates... would falling GDP make any difference... No real market for interest rates so Lending may depend on Incentives and policy of expansion or austerity of some sort?
If China & USA have to keep the balls in the air by expanding and creating new loans and buying new weapons... We have already been here with lots of false info on health of our two economies...
I am just lost for the moment.
USA has to exercise power globally to show it is a Superpower and our LT Treasuries and Fiat currency are still strong. US has to have like 5.6% GDP Growth to keep up with expanding Federal Spending of $3.5 Trillion Annually.
Dollar is rising today and we are sending troops to Ukraine.
Say 1% GDP Growth in 2015 due to use of US Military.
Where is Chinese policy going... are they really done with loose capital policy for a few years? Maybe a strong party line about working harder in China for a period of austerity. Of course the Hidden QE and Bailouts in China will profit the people near the Top.
Perspective and scale are two things you need to keep in mind for an accurate study of China.
That means knowing where some of these indicators have been in the past 10 years, ie. Chinese RE has been an almost continuous bull market for the past 10, 20 years even, a real correction may be bearish for the short term, but a healthy relief for the average citizens of the country in the long term.
Much of the heavy industry, construction projects, and capital intensive industries(the ones that use commodities heavily) that were easy to invest in were in recent years fed increasingly with malinvestment, with increasingly lower returns on capitial invested, pushed more by local governments as pet projects or pork-barrel industries to support local GDP figures. These malinvested captial-intensive industries also ties into the recent anti-corruption drive and reform process, and again, a real correction and fall whilst negative in the short term, IMO is good for the structural health of the economy because these are necessary adjustments that needs to be made, and not to mention the environmental and pollution impact these industries were causing.
PBoC actually adjusts the reserve ratio to control money creation, as far as I know (someone correct me if I wrong), PBoC is the only central bank in the world that adjusts the reserve ratio with regularity as a policy tool. Before I understood what the reserive ratio really meant, years ago, I followed the western media view that it was an 'outdated' or 'archaic' tool, now I understand that's not quite the case.
An interesting note: When quizzed on the subject of policy tools, PBoC has publicly commented they have more tools available to them than their western counterparts, and openly hinted western CBs(such as the FED) can't adjust their reserve ratios, and so far they seem to be right. This little quip from PBoC was almost never reported in the western media, I only heard it because I was in China at the time(pre-2011), and remembered it because it was such an interesting thing for one central bank to say about another. For those with an interest in what central banks do, like me(I typically have an interest in everything), this little quote carries all sorts of implications about the state and nature of the US FED.
Where Chinese policy is going is the million dollar question everyone wants to know, they are still in their reform process, there are still headwinds to their reform momentum, and a lot of their reforms are still unclear to the outside exactly what they are meant to do from their stated language on paper, or if they will be implemented in full or get bogged down by resistance, we'll just have to wait and see.
Thanks. A lot for me to think about. I'm out for a bit.
Care to elaborate? No sarc.
Yes, please share
"Here in Thailand things are coming apart fast!"
pachanguero
Tell us more and keep us aprised of the things not reported by MSM or alt news....!
If pigs can fly in the middle of July...
Oil being taken out behind the woodshed and being clobbered with my bag of PMs.
Point being..they are both behind the woodshed.
I'm curious to find out what happens to the global (nevermind the fracking) economy when WTI breaks below 85. or Brent < 90.
should make for some good times, I imagine. /s
was shocked how much scrap iron prices have gone up over the past 30 years. Up like 800% from the last time I sold any. 3% annual inflation rate my ass. a junker car is worth $250 in steel weight alone these days.
China is running at best at minus 8% GDP for 2014, at best.
The whole world economy is gambled as collateral for $1.4 quadrillion derivatives.
Collapse of price of ANY ASSET, oil in this case, will be a margin call on the whole system. No need to raise rates.
Pluto has been in China's 2nd House (Mao's founding) for about 2 years, in and out. If ever there was a clarion call warning about something being brought back to Earth....
I like your thinking on this matter-or-SHTF Time.....
We need a chart of the number of Chinese top 10%'ers buying real-estate in the US. If the Chinese top 10% aren't bailing out yet, I wouldn't be too worried about China.
I see a few double bottoms in those charts. Testing some lows. Awesomeness. Now sit back with the popcorn and wait for the real carnage to finally get underway. Bring it the fuck on already so we can get on with our lives.
Yep. Fits with the observation that sales in the West are stagnant to shrinking AT BEST. Whom else should the Chinese sell their stuff to? The only thing central bamks are still trying is suppress the gold price ..... for as long as it lasts.
Thing are pretty much status quo here and I doubt any China downturn, even a major one, will do much in the near term
Slow motion implosion in progress
If anyone want to look for sign of cracks. Start at the top. The post above correctly pointed out a change in Chinese stop buying foreign real estate or even selling. That was a clear sign when you knew Japan was taking a major turn for the worse oh so many years ago. At one point everyone in the US thought Japan would own them. Now that is not even a distant memory for most.
Right, and the Japanese purchases of US assets like Pebble Beach and Rockefeller Center perfectly called the top. But back to China: I'm surprised that coal consumption has fallen so much, unless it's due to lower steel production. China relies heavily on coal for electricity generation, which has been increasing ( http://www.indexmundi.com/g/g.aspx?c=ch&v=81 ), though the data I have stop at 2013. At any rate, if China really starts to fall apart, that is, the broader economy and not just the construction fields, electricity consumption will be a good tell--- and maybe Vancouver real estate, too.
They also produce a billion metric tons of coal a year so any consumption collapse in China will hit global markets. Also China is becoming a major oil producer as well with demand for "the goo" rolling over too.
Folks looking at China for price support might want to look elsewhere.
Those same pigs will be in the river again soon
http://www.zerohedge.com/news/2013-03-11/1200-dead-pigs-found-shanghai-r...