Behold The Deflationary Wave: How China Is Flooding The World With Its Unwanted Commodities

Tyler Durden's picture

Between commodity-backed financing deals and the centrally-planned mal-investment boom-driven excess capacity, China has a lot of 'liquidation' to do to normalize from a credit-fueled smoke-and-mirrors world to a painful reality. As Bloomberg notes, there’s no let-up in the onslaught of commodities from China. While the country's total exports are slowing in dollar terms (as we noted last night), shipments of steel, oil products and aluminum are reaching for new highs, flooding the world with unwanted inventories. China's de-glutting is now the rest of the world's problem as the deflationary tsunami grows ever higher.

 

Chinese trade data was ugly with exports down 5 straight months...

 

But, as Bloomberg notes, shipments of steel, oil products and aluminum are reaching for new highs, according to trade data from the General Administration of Customs.

That’s because mills, smelters and refiners are producing more than they need amid slowing domestic demand, and shipping the excess overseas.

 

 

The flood is compounding a worldwide surplus of commodities that’s driven returns from raw materials to the lowest since 1999, threatening producers from India to Pennsylvania and aggravating trade disputes. While companies such as India’s JSW Steel Ltd. decry cheap exports as unfair, China says the overcapacity is a global problem.

 

The flood of Chinese supplies is roiling manufacturers around the world and exacerbating trade frictions. The steel market is being overwhelmed with metal from China’s government-owned and state-supported producers, a collection of industry associations have said. The nine groups, including Eurofer and the American Iron and Steel Institute, said there is almost 700 million tons of excess capacity around the world, with the Asian nation contributing as much as 425 million tons.

 

Low-cost supply from China in Europe prompted producer ArcelorMittal to reduce its profit forecast and suspend its dividend. India’s government has signaled it’s planning more curbs on steel imports while regulators in the U.S. are planning to lift levies on shipments from some Chinese companies.

And finally, if offshore Yuan rates are to be believed, a devaluation looms (again)...

 

Finally, as The Automatic Earth's Raul Ilargi Meijer notes, there’s another side to this, one that not a soul talks about, and it has Washington, London and Brussels very worried. Here goes:

These large mining -including oil- corporations most often operate in regions in the world that are remote and located in countries with at best questionable governments (the corporations like it like that, it’s how they know who to bribe to be able to rape and pillage).

 

The corporations de facto form a large part of the US/UK/EU political/military control system of these areas. They work in tandem with the CIA, MI5, the US and UK military, to keep the areas ‘friendly’ to western industries and regime.

 

This has caused unimaginable misery across the globe, in for instance (a good example) the Congo, one of the world’s richest regions when it comes to minerals ‘we’ want, but one of the poorest areas on the planet. No coincidence there.

 

Untold millions have died as a result. ‘We’ have done a lot more damage there than we are presently doing in Syria, if you can imagine. And many more millions are forced to live out their lives in miserable circumstances on top of the world’s richest riches. But that will now change.

 

Thing is, with the major miners going belly up, ‘our’ control of these places will also fade. Because it’s all been about money all along, and the US won’t be able to afford the -political and military- control of these places if there are no profits to be made.

 

They’ll be sinkholes for military budgets, and those will be stretched already ‘protecting’ other places. The demise of commodities is a harbinger of a dramatically changing US position in the world. Washington will be forced to focus on protecting it own soil, and move away from expansionist policies.

 

Because it can’t afford those without the grotesque profits its corporations have squeezed out of the populations in these ‘forgotten’ lands. That’s going to change global politics a lot.

 

And it’s not as if China will step in. They can’t afford to take over a losing proposition; the Chinese economy is not only growing at a slower pace, it may well be actually shrinking. Beijing’s new reality is that imports and exports both are falling quite considerably (no matter the ‘official’ numbers), and the cost of a huge expansion into global mining territory makes little sense right now.

 

With the yuan now part of the IMF ‘basket‘m Beijing can no longer print at will. China must focus on what happens at home. So must the US. They have no choice. Other than going to war.

 

And, granted, given that choice, they all probably will. But the mining companies will still be mere shells of their former selves by then. There’s no profit left to be made.

This is not going to end well. Not for anybody. Other than the arms lobby. What it will do is change geopolitics forever, and a lot.

Charts: Bloomberg

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ebworthen's picture

China has Billions of people and soldiers to send to the Congo and other areas.

If it dries up for "corporations" and the West - it will be wet enough for China.

Manthong's picture

Yes.

I don’t know if anybody else has noticed, but tools of all kinds are becoming cheaper by the day.

Buster Cherry's picture

If we didn't have the EPA to protect me, I'd love to get a few of those excellent small diesel engines the chinks make over there.

38BWD22's picture

 

 

Chinese automotive replacement bearings seem to get cheaper every month now...  LCL ocean freight rates are lower for us as well (E Asia - Callao).

Definitely squeezing Korea and Japan..........

NidStyles's picture

While I commend cheaper, some of you must be welfare or SS recipients, I prefer something that doesn't cost me labor, that means anything except the Chinese garbage. 

 

Even the white undershirt I have gotten that were made in China were utter trash. They all stained very easily and let's not mention the holes after a couple of washings. I'd rather buy from Taiwan than China. I prefer made in the U.S. or at least Europe over anything though. 

 

I doubt I would use Chinese bearing outside of loose toelrance stainless. It's hard to mess up stainless. I don't trust Chinese bearing that much. 

White Mountains's picture

I've been a business owner for years, this is how I make my living.  Here is the problem: the majority of people WILL NOT buy quality, they go straight for the cheapest price.  They prefer cheaply made over made with care and quality.  Try to produce a quality product (which of course usually required more expense to produce) and you are likely toast, overwhelmed by cheap knock-offs that the masses will buy instead of yours.

And there you have it.  People demand cheap stuff that isn't durable, that's what they get.  Not the fault of the businesses, who are only responding to demand or go out of business.

Tyler Durderian's picture

Those chinese goods are a HELL of a LOT CHEAPER.

And for being "trash" they know to do  lots of stuff. Without COMPLAIN.

http://goo.gl/0MTYgf

VinceFostersGhost's picture

 

 

But in their defense.....they are buying gold......like a bitch.

Squid-puppets a-go-go's picture

A bit OT, but this saker article blew my mind. Read to the very final paragraph

http://thesaker.is/the-imf-forgives-ukraines-loan-to-russia/

 

pods's picture

Not really surprising, as these supranational organizations do the bidding of the status quo.

OTOH, since Ukraine needs gas and Russia has it, this measure has little teeth.

Gazprom can always watch some oldie but goodie movies and in learn some quotes:

"Who runs Bartertown?"

pods

Squid-puppets a-go-go's picture

indeed - if Ukr wants gas henceforth it will only come with 100% pre-payment

DontWorry's picture

An economics professor explained this to me.  You're a new MBA in charge of a division of a company that makes widgets.  You have to show increased profitability.  You can look at product R&D or business process re-engineering to try to improve your product to gain a competitive edge, which is expensive and difficult.  Or you can use cheaper materials and take manufacturing shortcuts, produce a cheaper product and sell it for the same price and make more profit, which is quick and easy.  Which do you choose?  In a few years you are pomoted and a new MBA comes in to take your place, with the same choice to make.  After a few generations of this, your company's products are crap.

VinceFostersGhost's picture

 

 

I'd rather see Jeb screwing a gimp.

 

If Karl Rove isn't doing anything.

thestarl's picture

Yeah I remember good quality Hanes T shirts made in the USA lasted long time

glenlloyd's picture

Yes, tools are getting cheaper, but some are looking like they're really poorly made.

And who needs tools anyway? Now that it's become very 'low class' to work on your own car or heaven forbid wrench on an engine or engage in an automotive project of some sort. Also since it doesn't have much to do with a smart phone or gaming console kids will have nothing to do with. Besides, they can finance a new car with zero down and no credit for 144 months.

Yes, there are some cars and engines in other parts of the world that I'd love to get. Would love to import a Phaeton TDI but good lord we couldn't have that thanks to NHTSA / EPA / DOT rules. Also would love a 2000 Polo TDI.

scintillator9's picture

Frugal people are unconcerned about "class".

My wife's friend laughs at my lack of style, for I have none, she said.

At least when the SHTF, some of the frugal types will have an idea how to get things going again, or how to scrounge for parts in a junk yard.

Also, cash for clunkers really messed up the used car market, and more importantly, the used parts market.......

Occident Mortal's picture

So your redeeming feature is that you will know how to scrounge for parts, in a dump, after some kind of armageddon societal collapse?

Inzidious's picture

Uh. Actually that's somewhat of an admirable feature. It means he's a resourceful problem solver, and as a business owner I'm able to say - that's a rare trait these days. Very rare.

DontWorry's picture

After the SHTF you'll be under the thumb of the local warlord, who used to be the local police chief.  He won't let you near his junk yard.

MalteseFalcon's picture

If you are fixing his car, he will.

tarabel's picture

 

 

In many cases, but there is one category of "tool" which is no doubt skyrocketing in price at this very moment.

ebworthen's picture

"Harbor Freight" should be re-named "Labor Freight" - what a bunch of cheap crap, and I mean crap tools - all from cheap labor and smelters in China.

The M.B.A.'s and corporate parasites have helped to kill Sears and Craftsman, but so has China.

Race to the bottom in many more ways than one...

DrZipp's picture

I have some tools that work really well from Harbor Freight.  A sawzall for $20 and a chipper for $100.

Never One Roach's picture

If China cleans up its pollution and corruption, it would be a good place to live.

 

Crime free for a change and relatively low cost of living. Although they would have to stop blocking 80% of the internet..that would help. It's no wonder Rogers and many others moved to the freer, cleaner nation of Singapore.

secretargentman's picture

China would need to clean up a lot more than that. The communist party would have to go, for starters. I hate tyrants.

uhland62's picture

I have experienced tyrants without a communist party. The German-Kohl Regime was one such and stole my land, no rights, no compensation, exactly like under the communists in East Berlin. They wore a Christian Democratic tag (CDU).

The tag does not matter, order and justice do. 

roddy6667's picture

I am a retired American living in China. I don't feel restricted or oppressed at all here. When I visit the US I notice large amounts of skin head Nazi wannabe cops everywhere. And everything is a police matter. Here the police don't bother you. They don't even patrol. They do traffic and public safety. I do feel oppressed when I am in the states. Don't knock China until you have lived here a while.

BTW, not all of China has bad air. You just read about Beijing and a few cities with pollution problems and you assume the whole country is like that. It's not. You wouldn't know that from the "free press" in America.

stacking12321's picture

thanks for the comment.

my understanding is that as a white guy in china you are often held in higher regard by chinese than they regard each other, do you find that to be the case?

Money Counterfeiter's picture

If you ae white in China you would most likely be educated and have money.  

Stuck on Zero's picture

Hey, secretargentman, how's the melamine in the squid soup taste?

uhland62's picture

That could still be more internet than you'd get under the Donald. If Donald blocks the whole internet, the 20 % you get in China would be more.

But the pollution is a big turnoff, so no need to learn the Chinese glyphs. Did you know that the languages can be quite different in China but the glyphs are the same? You can't just ring someone in a far away province and talk to them. But if you put it in writing they'll know what you want. 

DirkDiggler11's picture

Harbor Freight buys their tools from China by the lb. Bunch of knuckle busting Chicom bullshit is what they sell.

cornflakesdisease's picture

Yes, but the tools at harbor frieght are the same in house brands that many name brand stores sell.  Only the colors are different.

Salah's picture

my favorite store: HARBOR FREIGHT TOOLS

lasvegaspersona's picture

HF TOOLS CAN USUALLY BE COUNTED ON TO MAKE IT TO THE END OF ONE PROJECT. You'll want a better brandif youwant something that will last longer. Most of their stuff is barely functional....but if cheap is what you need....

Zero-Hegemon's picture

Not entirely true, their tools aren't bad at all for light duty use. Obviously if you're a contractor you'll want something better like Milwaulkie. But once you make your money from your first few jobs, you can buy whatever tools you want, at quadruple the cost. The worst I've found at HF is their specialized automotive tools use really soft steel. And don't even bother with their cheap tap and die sets, go to sears and get a real hardened steel craftsman set.

Rule of thumb, if your life or safety depends on it, don't buy it from Harbor Freight.

uhland62's picture

We have noticed, and have often said we do not understand how that comes about. There's really only one explanation, i.e. the numbers that they produce. I looked into books once.

My book at amazon has a cost price of 15/16 $, I think, and like everyone else, I sell it for 30. If I get 5 million books printed it'll be like 47 cents each. As the survival rate drops to zero on a long enough time line, the price of an item in a big enough quantity is just by weight (it seems).

Buy a tool and it hardly costs anything, buy a bucket of paint and your eyes pop. It's completely irrational. A few years ago I thought I'd like a pair of really nice jeans, but turned away when I looked at the 300/400 $ price tags. What? Some months ago we bought jeans, perfectly wearable but to disappear into the crowd for 10 $. It's sschizo.  

But I don't think they flood the world with unwanted commodities. There's no limit to the wants of people. (just like Bush II said 'there's no limit to the greatness of America').

garypaul's picture

These developments have me totally confused. Peter Schiff used to say that US dollars from China would come flooding back into the US from China since they don't want them anymore (they would rather have real goods than paper). But according to this, China is instead flooding others with actual goods because they want to accumulate more ... dollars?

cornflakesdisease's picture

Your first mistake was listening to Peter Schiff.  I love him, but he just doesn't understand how the big game really works.  You'd have also lost your shirt investing with him.

RockySpears's picture

I am not sure they want the dollars, that is just a consequence of need to get rid ogf a lot of inventory/over production.

wanderer9641's picture

Dollars still buy gold = empty the country of yard sale items and find some good stuff to take home.

ThanksChump's picture

"Do you hear that, Mr. Anderson? That is the sound of inevitability." - Agent Smith "The Matrix"

Mr.Sono's picture

That's not the only thing they are flooding.

Omen IV's picture

Australia is soon up for auction

Nexus789's picture

The Australian economy is about to fall of a cliff and its a long way down.

Never One Roach's picture
Perth house prices hit by record fall

 

Perth’s property market has hit a bleak milestone — its sharpest quarterly price drop on record.

Real Estate Institute of WA figures show Perth’s median house price fell from $545,000 in June to $522,133 last month — almost $2000 a week.

Cautious buyers had yet to meet an oversupply of 15,126 properties for sale in Perth.

 

https://au.news.yahoo.com/thewest/wa/a/29964289/perth-house-prices-hit-b...

 

But no worries, Mon. Realtors downunder, however, add, "it's contained." And they add, "There's never been a better time then now to buy a house overpriced by 400%."

DirkDiggler11's picture

Time to sell your house and use the proceeds to buy goodies from the Perth mint. Cash in and get out while you can ...

uhland62's picture

not my garden with my potatoes, no.