Um, how come this story is in the Sydney Morning Herald (as of about 20 hours ago) and not the US/UK business media? This is a pretty major development. Yes, commodities heavy Australia is most affected, but Oz is hardly alone in seeing the ramifications.
While the US dollar is weakening, the Australian dollar has had an amazing run, and the only justification I could fathom for its outperformance (it normally moves with the euro, albeit with more amplitude) was the commodities/China angle. Australia was the only economy to see its exports increase since the global slump took hold.
From the Sydney Morning Herald (hat tip reader Sean):
A record-breaking run run of commodities exports to China that has sustained the Australian economy may be set to end, with Beijing officials and advisers announcing an end to “strategic” stockpiling, and massive iron ore contracts likely to expire today.
A key state planning official has signalled a halt to government buying of copper, aluminium and other high-value metals because prices have risen too high.
“We don’t anticipate that the country will continue to build its reserves,” said Yu Dongming, the head of the metallurgical department of the National Development and Reform Commission…
Zhang Bin, an economist with the Government’s most influential advisers, the Chinese Academy of Social Sciences, warned that Beijing was leaning against Chinese speculative buying of a range of commodities including Australia’s most lucrative exports, coal and iron ore.
“The commission is acting to reduce pressure on commodities prices and discourage over-production in heavy industry, including guiding steel production and reducing the building of excess capacity,” Dr Zhang told the Herald.
“Too much increase in inventories of commodities is not a good thing because the economy is still not that strong and cannot consume this level of imports of iron ore and coal.”…
“I think the risks are weighted to the downside,” Mr Rennie said. “If China does slow demand for those key commodities, it is not entirely clear there is another obvious buyer out there.”…
“Iron ore imports seem to have started to slow down,” said Paul Bartholomew, the Shanghai editor of Steel Business Briefing. “I can’t see it bettering the 57 million tonnes … in April.”
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I read this this morning as well and was dumbfounded that Ozz resource companies were kept rising and the market kept climbing. It was like no one was taking any notice. The only thing I could put it down to was Chinese posturing in the wake of commodities contracts that are currently being negotiated and the big miners refusing to accept a 40% price reduction in iron ore.
There are major ramifications in this statement for commodity exporting nations especially Australia and when coupled with the various market comments about Chinas pending reduction in commodity purchases due to storage capacity, manufacturing slow downs etc makes this a "sit up and take notice" statement. Guess we'll see soon enough.
China is punishing Australia for blocking the sale of mines to China. China is also sending a message to others who are considering similar moves. The Aussies gave in to US pressure and are going to pay a very high price. As they should.
Methinks China makes large profits trading the markets, using its import clout and share of voice to game the markets.
If China is serious about decreasing its exposure to the dollar while at the same time continuing to run a large surplus with the U.S., then commodities have been one place to dump the excess dollars. Again, China is confronting the dilemma of its own policies, and like everyone else in similar situation, it blames the foreigners (U.S., now Australia) for the pain that results. I am not throwing stones since this has been the U.S. reaction to its own policy dilemmas since 1919, except for a brief period of relative enlightenment between 1944 to 1960.
Yves:
It seems part of the (American?)human condition to believe that the enemy is always smarter then we are. In this case the Chinese, who must have secret plans within its economic moves.
My answer is that Chinese economic planners are as dumb as ours have been.
Perhaps it was the Western commentators who woke them up to the realization that the stimulus money was going into commodity speculation. Like our TARP money was being used to create more losses for the IBs.
To China's credit they are trying to plug that leak.
Oh boy Cramer is gonna be pissed. You mean th Chinese economy is not rebounding and in full recovery mode. You mean they were just stockpiling raw materials. I can't believe he's wrong again. Well, there goes another 1000 youtube emails to discredit him. Crud. LOL
Beijing also indicated that it had finished stockpiling oil on June 1–the head of the National Energy Administration appeared to say that China's SPRs were full. Two days later, Denis McMahon at the WSJ & a bunch of his peers were taken to inspect some–usually national secret–crude tanks farms, apparently to verify that they were, indeed full.
Two weeks later, Platts calculated implied oil demand in China for May was up a full 5.96% from May 2008. Crude imports were up 3.55% from a year previous. Last Saturday, the NDRC raised the prices of diesel and gasoline by about 11% … we're talking $3.20+/gallon, well into the range where the price hits US driving demand … should have some effect in China.
Markets, OTOH, appear, so far, to think this is but noise … maybe to depress prices so the buying can continue, dunno.
Yeah, I'm feeling really guilty for not buying more cheap, worthless, poorly-manufactured Chinese plastic junk, so that that totalitarian, oppressive, communist country can enjoy a 25% growth. I just hate to think that given their decreased economic growth, the Chinese government is now unable to expor its murderous Marxist ideology to vulnerable nations.
But I promise to drive to Walmart immediately and stock up on as much Made in China garbage as I can possibly fit in my Lexus. I'll do it right away…lOL
Vinny G. — clear-minded, wise, insightful, and, above all: pro-American 'til the bitter end