Wednesday, July 8, 2015

About that economic impact . . .

. . . I mentioned earlier today, fallout from the Chinese stock market crash;  it's already happening, and has been for some time, just under the radar compared to all the other more headline-worthy events of recent weeks.  Commodity markets are the bellwether of what's coming.

Australia is a country that's more exposed than most to this sort of fallout.  Three articles in tomorrow's Sydney Morning Herald make that point clear.

The Chinese stock market is the world's biggest casino

Imagine this scenario: The Australian stock market plummets by more than 30 per cent over two weeks. The government steps in, ploughing billions of dollars into the hands of stockbrokers to bail out customers that borrowed to buy shares. And when that doesn't work, it just halts share trading in almost half the country's listed companies.

It is bizarre to contemplate, but that is precisely what is going on in China this week.

The Chinese stock market should surely be now be classed as the world's largest casino.

And the Chinese government has closed half the tables. It is attempting to ensure the punters don't lose the shirts of their backs.

It's an enormous stimulus/intervention into what is meant to be a free capital market that both smacks of desperation, and one which to date has been largely unsuccessful.

~ ~ ~

Iron ore plunges 10pc amid extended China market rout

Iron ore retreated to the lowest level in at least six years as a rout in China's stock markets threatened to hurt demand in the largest buyer just as the biggest producers plan to raise output.

Ore with 62 per cent content delivered to Qingdao sank 10 per cent to $US44.59 a dry metric ton on Wednesday, according to Metal Bulletin Ltd. That's the lowest price on record dating back to May 2009, the data show. The raw material was until the past several years traded predominantly through annual benchmark prices. Compared with those benchmarks, this would be the lowest since 2005, data compiled by Clarkson Plc show.

Commodities from metals to crude slumped this week on concern demand is stalling in China, where authorities tried to stem equity losses, and investors confronted the prospect Greece may quit the euro zone.

. . .

"The slump in equities reflects a lack of confidence in China's economy, which damps the demand outlook for industrial commodities," Wu Zhili, an analyst at Shenhua Futures Co in Shenzhen, said on Wednesday before the price data.

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Chinese steel is now cheaper than cabbage

Steel is now cheaper than cabbage in China, as weak demand and over-production continues to undermine the end market for Australian iron ore and coking coal.

Despite a water content of more than 90 per cent, respected commodity price index publisher Platts revealed that cabbages were pricier by the tonne than the most popular type of steel, known as hot rolled coil steel, which is used to make industrial pipes and some vehicles.

In a note on steel prices this week, Platts noted that when measured by the ton, the wholesale price of white round cabbage in Shanghai was about 6 per cent more expensive than a tonne of hot rolled coil.

The comparison was even starker at retail level, with Platts noting that the average retail price of cabbage across 36 Chinese cities was 61 per cent more expensive that wholesale cabbages, making it more than 70 per cent more expensive than steel.

When asked about the cabbage conundrum, one trader told Platts he would be "better off going home to plow the fields rather than try to make money selling steel".

China's stock market woes are bad enough on their own.  If the Eurozone goes pear-shaped as a result of the Greek crisis, the double whammy will be considerably worse.  If Putin tries to take advantage of the distraction by saber-rattling over Ukraine again, or China tries to divert its peoples' attention from internal economic woes by saber-rattling over the disputed South China Sea Islands . . . things could get very interesting, very quickly.



Old NFO said...

This doesn't bode well, in a LOT of areas...

Anonymous said...

Is there anything you can do about it? This is the end product of the "hundred year" "growth" binge the world markets set out on after WW2. The end of this "party" was inevitable, forseen by thousands of pundits and has been discussed to DEATH on the internet for the last ten years. Hell , Rev there may even be an upside to this as the paper money becomes worthless. Coin will once more become the medium of trade. Prices will fall back to a realistic valuation. The worthless and lazy will learn to work or starve and die out, and just maybe the humans will get so fed up with the government trash and banking scum that they may just exterminate them ALL (God speed that day!) As I said before this will sort out the way it will sort out, and Gods will be done upon it. This disaster took 70 years to set up , Why How and Who don't matter now at all, as it is out of human hands at this juncture. ---Ray