Speaking of China....

Interesting (but ignored) report out yesterday - after careful study [Aug 26, 2009: China Studies Curbs in Steel, Cement] China apparently believes it has too much steel capacity and is now ready to do something about it by the end of 2009. I say apparently because really do we know their motives? They could be very peeved about what happened in iron ore negotiations this year [Sep 25, 2009: Chinese Blink on 2009 Iron Ore Pricing] and this is some sort of warning shot. Consider these extraordinary statistics from the August 26th piece and you can see why it matters what China says/does when it comes to steel


China produced 500.5 million tons of steel last year as the world’s largest producer. That’s more than the combined output of Japan, the U.S., Russia and India, the next four biggest makers, according to the World Steel Association.

In the first seven months, China accounted for almost half of global output.

Now, in a rational world, when China says they don't need as much steel, iron ore and coking coal (components that create steel) should suffer. (steel prices have already dropped by a quarter in China) But in the Federal Reserve money is free and we'll print more by the minute world, the dollar will be punched in the nose today (as it does 9 out of every 10 days) and all assets priced in dollars - any commodity included- will rally and fundamentals will mean nothing. So I am just passing this along for informational purposes... please humor yourself. Nothing else matters until the Fed stops hammering our currency by free handouts to our mega banks.

Via Bloomberg:

  • China, the world’s largest steel producer, faces “severe oversupply” and the government is likely to decide on capacity curbs by the end of the year.
  • The government is working on plans to close obsolete mills, advance mergers and reduce the number of iron ore importers.
  • Steel prices in China have dropped 23 percent since reaching a 10-month high on Aug. 4, as overproduction offset rising demand created by government stimulus spending. Some steelmakers have incurred losses at current prices, Deng said.

Is there an iron ore glut as well?

  • Iron ore imports by China, the world’s largest buyer, have exceeded real demand by 50 million metric tons this year, the country’s steel association said.
  • The recent gains in spot iron ore prices are “speculative,Luo Bingsheng, the vice chairman of the China Iron & Steel Association, said today in Beijing at a conference.
  • China imported 405 million tonnes of iron ore in the first eight months of this year, up 32 percent from a year earlier, to feed its rapidly growing steel output.

If you can see through this fog of war you are better than I. Theoretically we are supposed to use commodity prices as a signal of strength in the global economy. But the largest user of said commodities went on a loan binge in the 1st half of 2009 that would make Alan Greenspan proud and now we see they appeared to go overboard, at least in the near term on buying stuff. And on the other side we have print baby print! Bernanke taking the US dollar behind a barn and shooting it the leg on a daily basis - and somehow we are supposed to be able to tell what the commodity markets are telling us about organic demand? Good luck.