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rookstar

4,778 Posts.

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16/07/21

12:49

Post #: 54551480
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Originally posted by Lonewoolf ↑

rooks i was reading this morning on ********* breakfast about how china is slowing down, read this and see you can make of it? to me it's just a bit of pause after the CCP celebration i suppose, all the fundamentals are there for the economy to still expand, see what you think?
cheers Lw
China’s Catch-22: Ecology or Economy?

By Glenn Dyer | More Articles by Glenn Dyer

Questions about China’s iron ore demand over the remainder of 2021 emerged yesterday as we saw further signs of a slowing in the pace of growth in the country’s huge economy.
The monthly activity reports and data dumps over the past three months have shown the slowing demand and activity – not across the board, but enough to paint a picture of the near year – indicative of a long recovery going stale.
And contained in the June data release yesterday were questions for our big three iron ore exporters – BHP, Rio Tinto and Fortescue – about just what the Chinese government’s much-touted 2021 output limit means given a near 12% surge in crude steel production in the first six months of this year (see below).
Thursday saw China reveal second-quarter GDP growth that came in below expectations, a negative that was supported by the slowest growth in industrial output in six months and a slowing in investment and retail sales last month.
GDP grew an annual 7.9% in the second quarter from a year ago, the National Bureau of Statistics said Thursday.
That fell short of forecasts for growth around 8.1% and was sharply lower than the huge, one-off surge of 18.3% in the first quarter of this year.
A slowdown in factory activity (as the monthly activity surveys have shown), higher raw material costs (especially for energy, iron ore, coal, copper and some agricultural commodities), and new COVID-19 outbreaks in some regions all weighed on the recovery momentum.
In the first six month of this year the economy grew by an annual 12.7% (which has been made to look better by the low back effect of the first half of last year).
China has set an economic growth target of “above 6%” for 2021 after advancing by 2.3% in 2020. On the basis of the June quarter data China will meet that forecast, unless the economy tanks in the next two quarters.
On a quarter-on-quarter basis, GDP rose 1.3% in the three months to June from the faster than the 0.6% rate between the first quarter of this year and fourth quarter of 2020. Growth for the first half of 2021 was just under 1%, which is a sharp slowing from the
But that was substantially less than the 2.6% quarter on quarter rate in the final quarter of 2020.
The June quarter pace, while faster than what was reported for the three months to March, was mostly driven by the explosive growth in exports which came despite bottlenecks in some southern ports due to Covid, a shortage of containers and the continuing shortfall in computer chips which hut production of cars, electronic goods and other advanced products.
The stronger pace emerged on the day that bank reserve requirement ratios kicked in with more than $US154 billion being released for banks to lend.
“China’s economy sustained a steady recovery,” the statistics bureau said in a release.
But the bureau added there were still concerns about the global spread of the pandemic and “unbalanced” recovery domestically.
Retail sales rose 12.1% in June from a year ago, more than the expected 11% level forecast by economists. But June’s figure was down slightly from 12.4% in May and 17.7% in April (bolstered by the low base effect from a year earlier).
Retail sales growth has lagged that of the overall economy, and missed market forecasts in April and May.
Industrial production grew by 8.3%, greater than the 7.8% market forecast. But NBS data showed that was the weakest growth figure this year and was down on May’s 8.8% and April’s 9.8%.
Industrial production in China increased 8.3% year-on-year in June of 2021, the lowest rate in 6 months, but above market forecasts of a 7.8% rise.
Another negative was urban investment. The NBS data showed an annual growth rate of 12.6% for the six months to June, down sharply from the surprise 15.4% rate in the five months to May but just ahead of forecasts around 12%.
Public investment growth slowed to 9.8% from 11.8% in January-May and private investment also slowed – to an annual rate of 15.4% against 18.1% in the five months to the end of May.
…………
Meanwhile, even though China’s crude steel output dipped in June, production over the first six months of this year hit record levels, leaving the Chinese government with a tough decision: does it force steelmakers to cut production over the next six months so that the previously announced output limit of 1.065 million tonnes can be met, or does it ignore its previous edict because the economy is not in good health?
It’s a question that our big iron ore exporters – BHP, Rio Tinto (which is due to report its June quarter and half year production report later this morning) and Fortescue will be pondering as they look to production and sales targets over the next six months.
The share price of the three companies rose on the ASX yesterday – BHP shares were up 1.1% to $51.53, Rio shares rose 2.2% to $131.14 and Fortescue shares ended with a 2% gain to $25.72.
The gains came as investors saw the weakening economic data from China and the release of the $US154 billion in bank reserves and thought – ‘payoff, more spending to stimulate the economy.’
But for steel and demand for iron ore – the situation is not so clear-cut.
The outlook for steel and iron ore (and coking coal demand, which doesn’t impact Australia now) demand and supply in China is now up in the air because of the government’s previous stated cap of 1.065 billion tonnes for total crude steel production in 2021 (the record 1.065 billion tonnes was the amount of crude steel China produced in 2020).
Based on the 11.8% rise in the June half year of just over 563 million tonnes, released yesterday in the half year data from the National Bureau of Statistics, the Chinese steel industry is on track to easily top that limit by the end of December with a figure of more than 1.12 billion tonnes.
If the 1.065 million tonne limit is enforced by the government ordering production cuts, it will mean a slowing in demand for iron ore.
Because Australia is in China’s sights, a drop off in purchases from Australia in favour of buying more higher quality fines from Brazil could be on the cards.
The Chinese government can cap output by enforcing production controls to reduce pollution and smog emissions (which it attempted to do in April, May and June, though with limited success).
First half crude steel output in 2020 was held back by Covid, but as the economy rebounded, steel demand recovered strongly and crude steel production rose strongly in the six months to December to around 554 million tonnes (which is not that far short of the 563 million figure for the June 2021 half year).
In fact the strong first half output for 2021 would have been higher but production being cut in late June to reduce polluting emissions to allow clear skies for last month’s celebration of the centenary of the Communist Party’s founding in 1921 on July 1.
To hit the 1.065 billion tonne limit by the end of December, production would have to fall to around 502 million tonnes in the coming six months or around 83.66 million tonnes a month, down from the average monthly figure of 93.88 million tonnes for the first six months of this year – which was coincidentally, the figure for June’s output.
Output in June fell 5.7% to 93.88 million tonnes from May’s all time monthly record of 99.45 million tonnes. The June figure was up 1.5% from June, 2020.
So to maintain its credibility the Chinese government would be expected to enforce its previous edict and if that happens, there will be cuts in iron ore imports and coking coal imports (that won’t impact Australia as China’s bans on Australian coal remain in place).
If there are cuts to iron ore imports, it will show up quickly in industry reports of a fall in iron ore shipments from Australia, then Brazil (more likely just Australia which is closer and easier to cut).
But the government might have second thoughts given the weakish second quarter GDP report and data on industrial production, retail sales and investment for June and the June quarter .
They all suggested the Chinese economy isn’t travelling very well at the moment.
While the release of $US154 billion in extra lending power to banks will allow tax and other seasonal payments to be met, it is also seen as helping debt-strained companies in property and manufacturing survive.
It could be that the absolute limit for crude steel output this year is observed more in the breach because the government ignores its previous statements because it needs the economy to remain as strong as possible to ride out the continuing sluggishness in some areas of demand.
Car sales for example fell 12.4% in June because of the shortage of computer chips. That cut demand for steel coal.
But in the centenary year of the Chinese Communist Party, it wouldn’t be a good look if the Chinese economy lost momentum and strength and staggered into contraction in coming months because of cuts to one sector produced a nasty fall in output and a rise in unemployment.

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Wolf,

Quite a contradicting article there, if china tries to slow down demand for iron ore (reducing the iron ore price) then they invite other countries to start competing for product i.e. South Korea, India, Japan, Vietnam, and Taiwan (there would be others here too).

So as you can see the iron ore demand is still there especially in india where they are looking to retain their high grade iron ore for their own country (the Indian Government put a tariff on the good stuff but was happy to sell the low grade stuff to china)
India about a week ago released a statement that they wanted to continue operations with Japan ad hinted that South Korea would have to look else where for the iron ore (high grade).

Indian government has also recently Auctioned off blocks of tenements where they believe they have iron ore to an open market, these will take some time as exploration needs to happen 1st.

Back to China, there is no way the Chinese should curb production, they are trying to jawbone the price of iron ore down, another reason the iron ore price hasn't taken off is Chinese government has opened up and started auctioning off their reserve stock piles, these stock piles are now getting depleted.

China is now scrambling to come up with more supply, hence the interest in Simandou, Cameroon and the DRC amongst other African countries, china is going to find doing business with these countries quite expensive is viable at all, then they need to cross the path of reliability.

Brazil, i dont think i need to tell you about the problems going on over there in Brazil other that to say supply is still down and there is no signs of this supply line getting bettter in the short term.

The environmental conditions is a slide of hand, most of the ore that goes there is from low grade local operators from what i have read. not that china cares for its people or the environment.

Any way i hope that covers off, alot of what you were pointing at, oh and 1 last one the 7% growth is still growth and china government hints that they will cap and maintain 6% off the article above.
Personally i believe the slow down in growth for my mind relates to lack of supply from Brazil and this supply (high grade) needs to be made up.

Other ASX listed share that operate in Africa or South America might be worth a look.
i would advise you do extensive reseach here as 2 ASX companies lost their tenements to Chinese consortiums.
I prefer to stick to Aus companies here in Australia unless they are bid and well funded for a court battle, i'm not saying juniors wont be successful, this is just my preferance.

I hope that answers your question.

Rooks

FEX Price at posting: 43.5¢ Sentiment: Buy Disclosure: Held
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