Wednesday, May 13, 2009

Commodities - It's China's World; the Rest of us Just Live in It

The remarkable spending on commodities out of China continues... this single country demand continues to make old sign posts useless. "Doctor Copper" is now hostage to the Chinese whims... there were thoughts in early April that after China had finished its stockpiling [Mar 23: - Chinese Stockpiling Spurs Copper Price Rally] prices might falter [Apr 6: Analysts Estimate Copper Prices Could Fall 21% in Q2] but after a short break China is back at it.

  • China's copper imports fall off the cliff after April in most years, but 2009 could prove different, with sustained Chinese imports keeping prices firm. Continued healthy demand would be bullish for the global market, given China is currently the only buyer of size.
  • In four of the past five years, Chinese copper imports fell sharply in May. The drops were as much as 26% to 59%, compared with April. Only in 2005 did imports rise, increasing 12.8% from April. China tends to buy most of its raw materials during the first few months of the calendar year, ahead of the more active summer trade.
  • Partly because of strong Chinese imports, LME copper stocks have already fallen 25% since late February to 394,925 metric tons. The trend looks set to continue.
  • Prices have generally held up despite a mild correction in the second half of April, partly on unfounded fears that Chinese demand was slowing, as in previous years.
  • During the first quarter of 2009, China imported a record 937,034 tons of copper, up 32.9% from a year earlier, according to data from the Customs Department.
It appears the Chinese plan to follow in the footsteps of easy money Alan Greenspan [Feb 16 2009: Is China Pulling an Alan Greenspan?] or more recently easy money Ben Bernanke have led to unprecedented loan growth; and all this money needs a home. Quite a bit seems to be going into every feasible commodity....

Next is oil which we reported 2 months ago... China's strategic reserve was full [Mar 9: Reuters - China Government Oil Reserve Full] but they were building even more storage.

The first set of China's strategic oil reserves, which can hold about 100 million barrels, were built over the past two years, but data on their status is considered a state secret and information about their operations or tank levels is scarce. China plans to build a second-phase strategic reserve that will nearly triple the first batch to 280 million barrels by 2011, and industry executives have said the current storage capacity has already become a hurdle to bringing in more imports.

As oil surges, we see the same Chinese hands behind the scenes

Via Bloomberg
  • Oil rose above $60 a barrel for the first time in six months after China, the world’s second biggest energy-consuming country, increased crude imports by 14 percent in April.
  • The Chinese numbers are pretty stunning,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The Chinese are looking at prices now as a good value and they are worried about all of the dollar assets they have. They are buying everything, any raw material they can get their hands on.”
I said this in 2007, I said in 2008, I will say it now and I am sure I'll say it in 2015. Americans simply do not grasp the competition that is coming down the pike. We are too busy spending our "stockpile" on bailing out the oligarchs personal pocketbooks.

All this massive commodity spending, even as a NEGATIVE 2nd derivative happens - Chinese exports in April were WORSE than March, and "worse than expected". So much for 2nd derivative improvement - no worries though... when we drink Kool Aid we only point out the 2nd derivatives that improve, and ignore those that don't.
  • China's exports plunge continues to be worse than expected, impeding recovery for the first major economy to emerge from the global slump. Marking the sixth straight month of declines, April exports tumbled 22.6% from a year earlier, compared with the market consensus forecast of 18.0% and March's 17.1% drop.
But China pushes ahead, after all all that money China is doling out has to go somewhere - anywhere. Needed, or not needed.
  • Meanwhile, China's fixed-asset investments in factories and property developments jumped 30.5pc from a year earlier as China’s £400bn stimulus package send a wave of fresh lending through the Chinese economy.
  • But beyond railway expansion and housing construction, policy-driven investment could be propping up manufacturing and industrial capacity that the market doesn't want. (Bingo) Morgan Stanley analysts have warned that China investors face a profit letdown, as the state-owned industrial sector prioritizes protecting jobs and produces in excess despite depressed prices. That excess output will still need to be absorbed by the West, as Chinese domestic demand cannot rise fast enough.
  • ....economists have warned that investment in the private sector remains relatively weak, raising the risk of renewed asset bubbles, bad debt and waste from excess investment in factory capacity and other projects.

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