Has China collapsed? Well let us look at the evidence:
Evidence For China
The exchange rates of different currencies give some clues about China.
The graph has been scaled that bottom is half of the top – only relative variations matter.
In this turmoil the USD/EUR relation seems boringly tranquil.
Both Australia and Brazil are major raw materials suppliers to China and other countries. Brazil apparently broke a little over a year ago, but was somehow overlooked in the noise around Europe and China. Japan we all know about as having debased their currency big time. The canary in the mine appears to be Australia that has enjoyed very high rate of exchange the last 2-3 years, but has dropped significantly the last month under repeated profit taking that really did nothing to stabilize. Last week’s serious drop was possibly halted, but there are more explanations than certainty: Canberratimes.com.au
Quote:
“To a large extent the recent weakness in AUD … can be attributed to the pressure being seen on ‘carry trades’ more broadly as the market moves to price an earlier and swifter Fed tapering of their bond purchases,” said John Horner, strategist at Deutsche Bank AG (NYSE:DB) (FRA:DBK) (ETR:DBK).
And:
ANZ currency strategist Andrew Salter said the fall in Australian dollar was “just collateral damage,” caught up in a volatile market place.
“It’s something that’s not really Aussie specific at the moment, it looks to be a consequence of what’s going on in the Nikkei and yen in Japan,” Mr Salter said.
Had a month ago a statement from Gina Reinhart (north of equator briefly known in the gossips columns) on the annual mining conference:
Quote:
“They seemed to think we could somehow afford to be increasingly cost uncompetitive and become deeper in debt.”
Ms Rinehart said the mining industry was the only hope for Australia not heading down the path of European countries fighting rising debt from overspending governments.
“It needs to keep reminding Australians this – that without mining and its related industries this country has no hope of repaying our record debt without facing the problems Greece and other countries faced with overspending and consequent debt traumas.”
Apparently Ms Reinhart is not enjoying her wealth with undiluted pleasure – and it is apparently the Governments fault.
Looking at the prices of iron ore, coal and steel – especially together – should catch the eye regarding China.
For one thing it has not been possible for about a year for IMF to get a remotely price quote on steel which in itself is odd for such a broadly used material.
Another thing is the price of Australian coal has been sliding unsteadily for 2½ years; simultaneously the price of iron ore has been oscillating +/- 20% around a price ten times higher than the 2003 price.
How come you are complaining when you are digging out dirt at prices 10 times what you used to? The logical answer is: You are not!
Looking at shipping, very, very recently:
Shipping has this piece while Maersk has launched the biggest containers ship – the first of an order of 20 from a Korean yard – appropriately named Mærsk McKinney Møller.
Quote:
When Maersk Line takes delivery of its new Triple E-ship the virgin voyage from Asia to Europe will not be light. The ship will be fully loaded when she slips mooring says Maersk Line CEO Søren Skou to Reuters in connection with the naming of the ship Friday.
“Volumes are strong at the moment. Our ships are full,” he tells Reuters.
After the bloodiest war on rates that has gone on for a long time – and further intensified since March – it is not a lucrative business, as rates are now so low that the ship sail with a loss.
The spot rate index SCFI published by Shanghai Shipping Exchange has fallen from 1423 dollar pr TEU mid March to 533 dollar this week – a drop of 62,5 pct.
“Probably the fastest drop in rates we’ve ever seen,” says Søren Skou to Reuters.
Conclusion
Well as there as China has apparently stopped producing steel – the western world has stopped buying a long time ago – at those prices. But it is not the price that is wrong, not even at 10% drop of AUD helps. The recovery of iron ore price since the drop late last year has all the markings of banks trying to save their collateral.
The most likely explanation is that China has stopped buying. Period.
Maersk might have a full ship, but freight rates dropping with 2/3 on an already pressed market sounds like fire sale of an unwanted commodity. Truth is probably there is nothing to sail with.
