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