down almost 6 percent in new york, page-23

Morning all

This week (and may be for longer) we're going to see a lot of negative stuff for BHP and commodities coming out of China. They naturally enough don't want the merger of BHP and RIO to proceed and they are still smarting about the recently agreed iron ore prices. I'm going to ignore EVERYTHING unless it contradicts one or more of the following points:

1. Last week there was a subtle change in the wording of the Chinese economic policy statement:

"At the beginning of the year, the Wen Jiabao administration stated the two policy priorities this year were to prevent full-blown inflation and economic overheating. Now, the wording has quietly changed to prevent full-blown inflation and a "big fluctuation of economic growth."

2. It does however seem likely that Chinese growth has slowed. With the economic slow-down in the States and EU Chinese exports must have slowed. And exports account for enough of China's growth to slow it down by maybe 2% [remembered from the Economist Magazine early this year]. But 2% say, isn't going to cause a global commodity meltdown!!! The bigger concern has to be that a slowdown in exports will create a tipping point that impacts on the domestic economy.

3. Is a tipping point likely?

We all know economic statistics coming out of China are suspect. Mostly, all they tell us is what the Chinese want us to believe... Another yard-stick is the export data from those like BHP who export to China and info from shippers (Baltic Dry Freight Index as someone else has pointed out). Because I believe raw material prices are mostly settled on supply and demand, I'm watching those and not listening to any Chinese whispers...The BDRI has remained in an uptrend this year albeit for a recent slackening, some of which MAY possibly be accounted for by China shutting down factories and plant for the Olympics? And/or may be due to sizable construction project delays in South East China (monsoon season)?

From the Financial Times over the weekend:

"While there is a slowdown and softness in some markets, in particular in southern Europe and the US, I don't see any major weakness in overall levels of demand," said Lakshmi Mittal, CEO of ArcelorMitall (MTL). While demand in emerging economies such as China, India, South America and the Middle East remained strong, global demand was likely to expand by 3-5 per cent a year in the next five years, against an average growth rate of 7 per cent in the past seven years"…"If you accept my growth estimates, that means the world will have to find another 50m-75m tonnes of steel capacity every year for some time."

4. The historical trend shows that China has been growing at, on average, 9% for about the last 20 years. This is a massive force with incredible momentum. It is not something that can be easily stalled. And the Chinese don't want to stall it (see point 1).

Just my opinion FWIW
cheers
Lekki