We have desperately tried to explain the sheer idiocy of the circular argument of the Fed 'attemping' to stimulate fiscal policy by enacting an overly permissive monetary policy, having failed miserably time after time. Perhaps the 'simplistic' argumentation of Diapason's Sean Corrigan will succeed where we have failed (although we are not holding our breath).
"Companies in the steel sector should be prepared for a long-term depression," Zhang Changfu, secretary-general of the CISA, told media earlier.
Strange then, that the offificial data for July suggest that Chinese steel outout hit a new, all-time high of 61.7M tonnes during the month, the YoY increase making up no less than 99% of the entire global increment over the year. Why on earth would this be?
Chalk it up to moral hazard - specifically, the same zombifying belief shared by the whole motley crew of Sinomaniacs, Draghi queens, and QEasers everywhere; that bad news equals good; that, in true Orwellian fashion, 'Weakness Is Strength' - that any shortfall in voluntary demand will elicit a large enough crank of the priting press handle that the glut will soon be removed from the market and so obviate the need to undertake any painful restructuring, or to quit the business and release scarce resources for use by those with a genuinely viable busines plan.
Back in metal-bashing business, Wang Lei, the head of a Shandong ore trading company, bemoaned the current adversity, telling Caixin:
"If you had iron ore [last year], you could hold it for a couple months and then sell it and earn $20 to $30 per ton easily. We bought ore for about $135 per ton, but no one will take it, even if we try to sell it at a loss."
Wang and his friends apprear to have drawn a deangerous lesson from the events of 2008-9 though. As he told the magazine, Wang remembers watching the value of his company's inventories decline rapidly in 2008 until the price bottomed at US$60 per ton the following year.
When the ore prices fell, he reminisced, he and his fellow trades were not pessimistic because they correctly assumed that the Chinese government would step in with an economic stimulus to offset the crisis and so revive demand. Sure enough, as the boom progressed, prices soared, reaching close to $200 a tonne in 2010, a level they revisited some 18 months ago, before policy began to tighten and the long slide to sub-$100 began.
So, once bailed out, always bailed out seems to be the guiding inference. Meantime, close your eyes and pray.
Via Sean Corrigan of Diapason Commodities