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Here Comes The "QEmmodity" - China's Desperate Commodity Sector Demands A State Bailout
When it comes to commodity metals, the dead cat no longer bounces.
We showed this last night in "No End In Sight For Commodity Carnage As Chinese Fear Fed Hike Blowback", a post which can be summarized with the following chart showing that at least for nickel, copper, zinc, iron ore and aluminum it will be a very unhappy holiday season:
The one-word reason for this condition: China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters - the commodity space.
That joke has become a reality according to Reuters, which reports that China's aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.
The state-controlled metals industry body, China Nonferrous Metals Industry Association, proposed on Monday that the government scoop up aluminum, nickel and minor metals including cobalt and indium, an official at the association and two industry sources with direct knowledge of the matter said. The request was made to the state planner, the National Development and Reform Commission (NDRC).
One Reuters source familiar with the producers' request said the China Nonferrous Metals Industry Association had suggested that the state buys 900,000 tonnes of aluminum, 30,000 tonnes of refined nickel, 40 tonnes of indium, and 400,000 tonnes of zinc.
In other words, everything that is plunging because there is simply no end-demand should simply be bought by the state.
And why not: in "developed" countries, the same thing is being done by central banks, only instead of directly "monetizing" metals, the central banks indirectly push up stock prices which is where 70% of household net worth is located. For China, and largely investment driven economy, the same can be said about commodity prices.
Furthemore, as reported two months ago, at current commodity prices, more than half of all companies with debt in the space are unable to make even one interest payment using organic cash flow which makes the decision for Beijing moot: either buy up the excess metals or reap the consequences of mass defaults.
For now it is not clear if the authorities will agree to the proposal, but as Reuters notes, the approach underlines the extent to which loss-making smelters in the world's top producer and consumer are suffering from prices hovering at or near multi-year lows.
"Major Chinese zinc smelters had already proposed that the sector slashes output by 500,000 tonnes next year, or around one month's production, in an attempt to boost prices. The country's major nickel producers will meet on Friday to discuss potential output cuts of their own."
Reuters further adds that "while the proposal does not include copper, it is likely to revive memories of 2009, when the State Reserve Bureau (SRB) in Beijing swooped in to buy more than 700,000 tonnes of copper on the domestic and international markets."
Prices were languishing at around $3,000 per tonne at the time, and the buying spree reversed the falls and ultimately helped to propel prices to record highs above $10,000 per tonne in February, 2011. The SRB considers copper a strategic metal. The SRB is controlled by the NDRC, and any state purchases of most commodities are normally approved by the planner and executed by the bureau.
The bottom line is that China's entire metals industry just requested a stated bailout, and as Reuters states the push to get the government to bail out the industry is likely to stir debate over whether Chinese producers in particular are doing enough to limit oversupply that is overwhelming global demand.
Unless there is one, the global deflationary wave is set to continue:
In the United States, aluminum smelters have blamed ballooning exports from China for hurting international prices.
Nickel prices on the London Metal Exchange, which sets the benchmark for global trade, plunged to their lowest in more than a decade on Monday amid concerns about waning demand from China, the world's second-largest economy.
Few, if any smelters, are making a healthy profit at prices as low as $8,200 per tonne, down almost 60 percent since last year.
Aluminum prices have fallen nearly 30 percent over the past year.
And yet, despite the dreary picture, deep value investors like Baupost and Elliott recently acquired large chunks of Alcoa. Why? Because they are confident that the this latest demand for a government bailout will ultimately be greeted with an affirmative shake of the head by Xi Jinping. After all, the alternative - fair price discovery - is just too gruesome for any central-planner to even contemplate.
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Sure Xi Ping could buy out commodities, but how long can that last for? They'd have to keep doing that until demand catches up, which won't be happening for years (decades?). If they're smart they'd let those companies crater, but I doubt China would do that, judging by how they propped up the stock market, and how those companies tanking can have a ripple effect across the globe.
Notice one or two popular metals missing from the State should buy list
Excess labor, excess inventory, low demand and falling prices and interest rates.
The newest Chinese export...the Greater Global Depression.
I'm investing in over-capacity for Christmas ... how about you?
#SavingTheEconomy
Regards,
Cooter
Add to that, the rumbles of an incipient world war...it's 1930's all over again.
I think it more like pre-ww1. Just the way that I see the chess pieces lining up.
Pull it!
Dump all the metal in the ocean, make an island out of it. Pave a landing strip on it.
So the recent bolstering of China gold reserves could be a form of QE? Maybe, maybe not. Gold counts toward official reserves, tin does not. What if China had a lot of money-losing gold miners?
Still, the bottom line of QE is to get fiat currency out into the economy. Buying locally-produced metals would do that. So go fer it!
Except buying metals isn't exactly QE, as there's a physical product.
Your comment also points to why China isn't "hiding" gold purchases to the extent that many conspiracy theorists believe. China buying gold does nothing for their economy, as gold in a vault is useless. But buying surplus non-ferrous metals would be directly supporting their own industries. The Chinese aren't as dumb as people make them out.
Buy them. Store in warehouse. Blow up warehouse. Problem Solved!!!
i think the chinese need to start hiding!! They are truly dumb niggaz
Chinese investment banks and economists have started calling for a December devaluation, once the currency is in the SDR. Pretty much guaranteed considering the PBoC is propping up the yuan to get into the SDR and it must allow the market more sway over the exchange rate after being added.
Hope For China's Economy Smashed To Pieces; December Do or Die; Yuan Devaluation ComingFuck 'QE for Metals' we're talking QE For MASTER OF UNIVERSE
before anyone gets any fucking QE for anything, motherfuckers! My King James Bible sez...
"Those who are first will be last, and those that are last shall be first."
PAY the God damned Piper, motherfuckers!
I called first dibs on QE March 10th 2008.
All Corporatists can back the fuck off until I get my QE from the Gubbermint.
But you forgot "Those who are in the middle shall be screwed royally"
So please ease-up on your quantities.
I'm sorry, but that line of verse is not contained in my King James Bible. Class consciousness came after my King James Bible when Professor Emeritus Karl Marx popularized it with Das Kapital.
Just issue paper for it. Problem solved.
That doesn't work.
There is a point where printing will crash an economy rather than save it.
Printing money helps when the circumstances warrant it, but it is not an end all.
The USA did not print 100 trillion, it has controlled the release and the GDP and revenues are running razors edge but not doom.
China needs to stop printing and start paying back and frankly using some of those reserves might be a good thing.
Printing like killing a person is a crime at different times. Kill a guy on the street it is murder, in war time it is civilized. Print money when there is justification is ok, do it when you can not pay back ever or cover the devaluation - NO.
Zimbabwe is a great example of simply printing money. They "revalued" their currency 3 or 4 times, and in total, chopped 23 zeros off the "value". Example, when they got up to when a tillion was only worth a few cents, they reissued so one "new" dollar = 100 trillion "old" dollars. And they did this 4 times before giving up.
The over capacity is the true issue.
Those factories have to put out a profit to pay back interest rates that are very high - now with over capacity coupled this is a lot of stress.
Even of the state agrees to this, it is setting a precedent for the other innumerable bad debts soon to come knocking on their doors.
3 trillion sounds like a lot, but the debt in the country is ten times that.
A 10% default rate is not only expected, that's optimistic.
Well, those are strategic metals.
America should read between the lines as China will buy up reserves, international traders will smell a deal and sell them everything they need.
Inidium strenghtens aluminium by lowering it's melting point....
Typically used in fighter jets...
Ehe...
They call themselves Capitalists? Put that shit on AliBaba and eBay in 1lb units with free shipping at near market price and they will sell out. I'll take 20 lbs of Indium. It will make my silver stack look shinier.
I encourage the Chinese commodity sector to establish a retail presence in the USA, perhaps through BJ's, Lowes/Home Depot, or military surplus stores. I know I would pick up some lead, copper, brass, and maybe pig iron and other things, just to be sure.
The Chinese have learned from the best, Fed, ECB et al.
The temptation to re-write the rules to avoid losing. It's a sucker's game in the long run. THERE ARE NO FREE LUNCHES.
What would happen if they minted it into coinage?
I customize boats, use a lot of copper wire for big battery systems, inverters, solar power, electronics, etc, etc.
Normally the copper-based things I need are so expensive that I buy them only as needed for each project. However, earlier this week I was stunned to see how LOW the prices of copper-based electrical products (eg wire, terminals, etc) are now, so I bought many years worth of supply while the prices are unbelievably low, and today I bought even more because I found many suppliers who are having liquidation sales at unimaginably low prices.
If you use copper based products, you would benefit by checking out the current prices.