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Bloomberg: Kinesisk økonomi langt værre end antaget

Morten W. Langer

lørdag 11. april 2015 kl. 8:04

Meanwhile, in China, things are “a lot worse than you think,” says Bloomberg metals analyst Kenneth Hoffman who recently visited the country to assess the outlook for metals demand. This doesn’t exactly come as a surprise. Falling demand from China has been a major factor in the collapse of iron ore prices which just today caused Australia’s fourth largest miner to suspend production altogether and which last month prompted Fortescue Chairman “Twiggy” Forrest to break out the old “let’s start a cartel” suggestion when discussing how to firm up prices. To let Bloomberg tell it, demand from China for the steelmaking ingredient won’t be picking up anytime soon:

China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country.

What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook.

“China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”

Prices for commodities from iron ore to coal are sinking as China’s leadership tries to steer the economy away from debt-fueled property investment and smokestack industries, embracing services and domestic-led consumption. At the same time,

President Xi Jinping is stepping up efforts to combat pollution, further squeezing industry.

“There is a big fear this is going to get worse before it gets better,” Hoffman said in an interview. “It’s as bad as the data looks, if not worse.”

And the data doesn’t look so hot especially after last month’s contraction territory PMI print and collapsing rail freight number. Then there’s rising NPLs which are prompting the country’s largest banks to slash payouts as loans to manufacturers sour in the face of the very same economic transformation cited by Bloomberg. Finally, China has a small smog problem and while Beijing is apparently trying to export some of this to places that can use a little more pollution (like the rainforest), some estimates suggest that cleaning up the country’s air will come at the price of a 40% decline in industrial production.

Considering all of this, it’s no wonder that Credit Suisse is out with the following bearish commentary which supports a rather dire outlook going forward:

We have made fundamental changes to our demand analysis for iron ore. Given sharply weaker regional steel prices, we now assume a reduction in Chinese steel exports over the period to end-2018. Given a weak domestic backdrop for steel consumption, this results in steel production declines over the next three years. 

2016 is likely to be even tougher year than 2015 for prices as China steel production declines persist (forecast down 0.6%), Roy Hill mine comes to market, BHP adds 25Mtpa, and Rio Tinto continues its ramp up towards +350Mtpa output. In 2016, we expect the most marginal tonnes will have exited the previous year, so the reduction of China domestic tonnes and the retracement of “Other” seaborne tonnes will have slowed. Another period with aggressive pricing will be needed to clean out the new marginal tonnes. We forecast a price of $45/t CFR for the first two quarters next year.

Our China colleagues expect steel growth rates to be negative. Figure 10 shows how far China’s domestic steel consumption has contracted from peak levels of 12 months ago. 

 

 

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