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Forget Copper: Steel Is The True Indicator Of The Chinese Hard Landing
Last week we pointed out some curious observations from Fortress on commodities and the state of the Chinese market courtesy of secondary industrial metals, notably steel: "The investment landscape for industrial metals is becoming increasingly more difficult to navigate. As highlighted in last month’s letter, we are continuing to see a rapid deceleration of growth in China, specifically within the cyclical industries. A recent trip to visit steel companies outside Beijing underlined the impact of extremely tight liquidity and continued restrictive policy in the Chinese housing market. Steel capacity cuts – through idling or accelerated maintenance outages – are now commonplace and the speed of these cuts has certainly surprised the market. Construction is the principal end-market blamed for this weakness; given the very large inventory overhang and the continued lack of liquidity, this is not surprising. In our equity universe, we have also seen numerous companies expressing concerns regarding China construction demand. Zoomlion, China’s second largest construction machinery company, recently said, "Demand for construction machinery has shrunken drastically and growth will no doubt continue to slow next year." Within the context of declining housing starts, plummeting transaction volumes and the beginning of a meaningful move down in housing prices, these shifts in the steel market have been an interesting harbinger of more substantial problems in the Chinese economy. Our principal concern is the extension of housing weakness into the banking system through the mechanism of both failing developers as well as the opaque and informal lending. We are concerned that the recent strength in iron ore, steel and copper has been misinterpreted by the market. In our view, any suggestion that the Chinese market is undergoing a substantial restock is misplaced." Today, we get a confirmation of just this warning courtesy of Citigroup which has charted weekly Iron Ore China port inventories and of broad steel inventories. Needless to say, domestic steelmakers, who better than anyone know the state of domestic end product demand, have seen the writing on the wall, and have one message for the world: short Brazil and Australia.
h/t David
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forget steel. This is about the financials. If the financials don't break down the game goes on.
It's not steel. Steel is for building. Ore is for war.
Not anymore, Titanium is for war.... and other nice stuff too. As for Steel finallly yes agreed. SHOOOOOOOOOORTT VALE.
Let me see. Global financial system about to break down, China looking at a hard landing, EU Euro on the verge of fracturing, US economy scraping the bottom of the pool, US about to implode if Europe crashes, prospects of printing USD galore.....and some say....sell your gold and silver??
One thing is certain - nobody knows how this is going to end up, but it wont be good.
This is one gun fight I won't be taking a knife to.
unless that knife is made of bullion
Don´t sell your Gold and Silver, we have a carry trade short squeeze, the budget problems the leverage of consumers and of the economy has not vanished just because there is a 2% move down on the GOLD. Actually a harder currency makes the problem more acute for the US. What US needs is a deleveraging with orderly debasement of the USD, not a short squeeze, recession outside the US in China and Europe, while it makes hte USD stronger, it makes the situation more unstable. If the strength of the dollar was associated with a multi-year period of deleveraging through inflation and visible inflation for consumers and media pundit, you would do what Jim Rogers did in the 1980s. That is buy muni-bonds. There can not be a bubble in treasuries now and a peak of Gold at the same time, the bubble of treasuries as to deflate first for a good amount of time before we see a risk of being at peak on Gold. SHORT VALE.
This would impact Japan as well.
And Korea.
If I run into anything about steel or bearings from Korea being affected, I will advise you Zero Hedge readers.
Just using this space for OT, thanks DCRB.
Long Island's Chemtrail Trials Continue as Suffolk County Says "We Won't Be Sprayed Like Bugs"
http://www.youtube.com/watch?v=beLQckbkXxU
Explain yourselves downarrows! Don't believe in chemtrails?
Do you make silver plated bearings?
Yen looks like it's setting up for a sharp pullback.
Don't worry - steel now being used in Viagra condoms......
I always thought that the Chinese built their buildings with drywall composed of pulverized rice/water and bamboo shoots for support.
What is this talk of steel?
It would be nice to see that first chart from a multi-year perspective...
slide your thumb on the chart on your iPad
I would, but I was hungry, so iAte it.
Why the fuck would you do that?
Your thumb?
Thanks for the tip. I was getting upset over the past few weeks about the ads popping up in front of the charts.
Also for those who haven't done so yet - DONATE TO ZEROHEDGE DURING THE HOLIDAY SEASON!!!
Donate? Naw...just click on one of the ads now and then.
I click on muslima.com to drive Freddie nutz...and I blame him personally for its initial appearance.
China and US Q3 trade figures did not sport the ususally expected year-end surge.
Yes short Australia via the ASX200.
looking at the chart right now. very nice HFT scalp going on. good, those junk heap machines panic. We get a nice 100 point drop.
So all systems are on a alert? Plan B.
70% of the Chinese Economy is construction based - Steel has always been the commodity to watch in China - I learnt this a few years back from Big Jim Chanos.
I reckon China is on the cusp here and needs some serious intervention to stave off something bad happening - 2300 is the maginot line for the Shanghai Composite - if that goes with some continuation then expect a drop of 20% or more.
Also don't forget the Shanghai usually leads world markets by several months - has done for years. Interesting times.
The big four in iron ore production
China
Australia
Brazil
India
Check stats of lumber exports to China also, from US and Canada.
Lumber sales to China from B.C. soaring.
http://www.bcbusinessonline.ca/profiles-and-spotlights/industries/energy-and-resources/chinese-demand-for-bc-umber
Once again, highlight the only uptrend, forget the rest:
http://news.tradingcharts.com/futures/4/1/169866314.html
And don't even mention that in the upper Midwest, banks stopped repossessing logging equipment two years ago, figuring any payment is better than shipping $250,000 or so pieces of equipment to China for scrap prices....
This is a key turning point where China's "business plan" begins to diverge from what the West has wanted it to be.
Well if they aren't using as much steel, I don't understand why my factories are so fucking busy? They refuse anymore business from me. Tell me sorry but capacity is maxed out. We can't give you anymore. All machines very busy my friend.
I keep hearing China is about to roll over but every indication I have from friends in Shanghai to my factories in the North and South are that they are going full tilt. Buying new machines from Canada and Germany. Spending hundreds of millions of dollars.
Fuck I don't know?
Those factories are now churning out tanks, rifles, landmines, fighterjets, aircraft carriers.
Shit's about to get real.
Perhaps all of those empty cities they built were for a post war China.
I am not certain China wants you sharing that secret.
Postwar China, yes, but not for the Chinese. They were built to house the Iranians and Pakistanis who will be displaced when China finally makes its move and charges west and grabs Pakistan's farmland, Iran & Iraq's oil wealth, and Syria's access to the Mediterranean (and quite possibly, Afghanistan's mineral wealth).
No,not china but someone else is drolling at the thought.
Sometimes when things go are going well, a development of overcapacity arises when demand normalises and expected growth rates are not achieved.
GM is the shining light of overcapacity - from being the world's largest campany to going bankrupt mainly due to overly optimistic capacity build - all during the greatest period of economic prosperity in the history of mankind - an impressive fail.
Worthwhile taking a check every now and again.
Regards
That´s strange since we´re now in the steel industy´s seasonally lowest capacity utilisation ratio. Capacity utilization has dropped from 83% in June to 75% presently. If you have problems with overbusy suppliers at this point you´ve clearly been asleep at the switch.
just speculating as usual but my guess would be we're talking steel used in construction--which is it's largest use. Chinese--as well as the rest of East Asia live primarily "in the sky." these are not "stick built skyscrapers"--but use massive amounts of steel and copper, both of which have been surging based on "chinese demand" for years--until now. We know India is basically in a recession so where the growth is really gonna come from is hard to say. i brought up North Dakota two years ago--i'm sticking by that call today. ask yourself this: "what did Saudi Arabia look like 50 years ago" if it sounds totally ridiculous to you.
Maybe they figured out the best way to fight inflation is to stop the massive importation of cheap dollars and consume their own products they make.
China as something to consider in global macro economics hasn't been around very long, what, less than 20 years? Thinking of China as anything other than a source of cheap labor has only been around for about five years amongst status quo thinkers. Funny correlation between status quo thinkers and their deflationary bias, particularly when it comes to China.
A deflationary bias is the last bullet left in the chamber for the status quo and anyone with a deflationary bias should be considered an agent for and by said status quo. Clearly, technocratic central bankers and governments have to inflate or it is game over for their fiat ponzi scheme. If I were a central banker, my greatest fear would be hyperinflation--the end of all fiat, debt based economic models. The (false)threat of deflation is merely cornucopian, "we will muddle through" fantasy.
0237 GMT [Dow Jones] South Korea's government cuts its 2011 and 2012 GDP growth forecasts to reflect slowing momentum as the eurozone fiscal crisis weighs on the global economy. The government now sees 2011 GDP growth of 3.8% and 2012 growth of 3.7%
Not the EZ, it's all China that is ripping into Asia's GDP. We are doomed in 2012. Going to be a brutal yr.
These f*cking leaders are taking us to the abyss with their bullsh*t.
Thanks for the heads up on Korea, if I hear anything material, I will let you all know as well.
Some facts of life just jump up and bite people, when they get going good. No production economy can prosper by selling into declining markets. As the debt crisis in Europe spreads, the global economy declines. China has ridden the wave of export income. The wave is about to crash on the beach. They'll have to figure out how many burgers somebody has to flip, to buy housing. Unless they can find an alternative, don't ask the U. S. We still don't have an answer for that one.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
courtesy of Citigroup the big lie of the banks .. how the hell can you believe what they say . this eye ball on china while the usa is going down the toilet . hitting a knat with sludge hammers.. this is chinas century .. beat at the leaves of the problem ,, and forget your own home base . typical traders and ass blind of coming events
Fuck China.
Honestly, the West needs to wake up - before China decides to take over the Pacific and the oil reserves in the Middle East - and we need to stop the corporate and university types from sucking so much China cock to make a buck.
NO - you can't have my land, money, or my Daughter you MOTHER FUCKING CHINKS!
Rot in hell all you Western sellouts!
Well, ebworthen, you're a bit late as the Chinese Army is in the Sudan pumping oil under contract and defending the pipeline as its close to Darfur. Meanwhile, they also out bid everyone for an un-dug copper mine, with no roads, in Afghanistan. Oh, and they are big pals with the Pakis. And they trade tech for oil with Iran.
So its a little late to worry the Chinese in the Middle East.
Good luck projecting power to enforce all of those contracts. China is already losing to a geographical neighbor (Burma) who forced them to stop construction of a 4000 mW dam at Myitsone> Burma has also announced that gold mining contracts will be torn up next year. If a neighbor can get away with that, rebels in the Sudan can do whatever they want. As for Afghanistan, good luck dealing with the warlords. I'd put more stock in a pocket full of fiat than a mining contract in Afghanistan.
Yea everyone knows that the oil in the Middle East is for America!
Europe actually.
It's not the Chinks that are the problem but the CCP, big difference. The Chinese in the street have more in common with you than apparatchiks in the Forbidden City.
Well if you want to make money you have to learn to have "sit on teh fence" mentality and just count the punches, not jump in the pit and start to take punches because you like one side or the other....
From Bloomberg:
For all the transparency forced on the Federal Reserve by Congress and the courts, one of the central bank’s emergency-lending programs remains so secretive that names of borrowers may be hidden from the Fed itself.
As part of a currency-swap plan active from 2007 to 2010 and revived to fight the European debt crisis, the Fed lends dollars to other central banks, which auction them to local commercial banks. Lending peaked at $586 billion in December 2008. While the transactions with other central banks are all disclosed, the Fed doesn’t track where the dollars ultimately end up, and European officials don’t share borrowers’ identities outside the continent.
I'll bet the recipients have big noses..
I"ll never understand why China wasn't nuked 60 years ago.
Too late, now they're a problem.
Greed is why. It was more profitable to sell out and give the jobs to Chinese than it was to pay Americans. Those who knew the system was failing them had no power to push that button. Still don't. And though you may not like the West losing it's economic leadership status, the corporatocracy is fine with it.
The jobs weren't given to China. They were pushed out of America. Taxes and regulation.
They're a problem for what? Continuing the Ponzi?
Typical dumb-American attitude. An embarrassment to live in the same country!
anbody have a bottom for cocoa futures?
Well, it´s about to drop through the 2008 bottom.
Maybe 1500, where it was five years ago. Or lower, like in about everything else there is extreme oversupply in cocoa.
GS commodities warehousing business will most likely go belly up next year.
now look at her...wish i wasnt shorting es all morning...
Done and done. Great stuff ZH.
i had a wooden whistle,
but it wooden whistle
so i got a steel whistle...
...and it steel wooden whistle!
Next plan is war. Plan for more steel and blood.
Meant to reply above
Good assesment. The steel stocks usually perform really well this time of year, pretty consistently actually: US Steel (X) and AKSteel Holdings (AKS) (Click to view seasonal trends). So far this year, these stocks have been getting destroyed - even thought the share prices have enjoyed a slight rally over the past few days...
Why buy iron when it can go poof in 8 seconds flat and leave a pile of paper? WTC a million tons of steel and poof just paper and dust. the Chinese are making a counter offensive to the defense psycho's in the USA who have a very big gun. check-it 'where did the twin towers go?' and the demand was give us all your money else.... wonder where all those trillions went to? really? if you can not charge a handlers fee on energy sources then you are suddenly holding an empty bag. for those of you not interested in reading a 500 page book here is an interview.
http://www.youtube.com/watch?v=bmmQ6OWMHTI&list=PL408995638AC0EA74&index=11&feature=plpp_video
Yeah I know She is very cheeky.
Let me shrink it down for you.
http://www.youtube.com/watch?v=oO2yT0uBQbM
Chinese steel industry profit margins collapse:
http://investinginchinesestocks.blogspot.com/2011/12/chinese-steel-industry-profit-margins.html
I'd hate to see 1.5 Billion angry people. China will reverse its tightening and begin to print again. History tells me that.
Ok, I know how to get attention now. SHORT VALE BITCHEZ!