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On China And The End Of The Commodity Super-Cycle; From ZeroHedge
Topic Started: 7 Mar 2012, 11:46 AM (5,085 Views)
apex
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On China And The End Of The Commodity Super-Cycle

China had a massive surge in its demand for commodities over the past decade, fueled by its housing boom and infrastructure investment boom. From 2000 to 2010, China’s imports (in value terms) of iron ore surged by 42.5 times, thermal coal 248 times and copper 16.2 times. During the same period, its production (in quantity terms) for aluminum jumped by 441.8%, cement 219.5% and steel 396.0%. It is the biggest consumer in virtually all commodity categories in the world. In Credit Suisse's view, China was the key factor behind the global commodity supercycle. After a period of economic slowdown, all eyes are on China, hoping that the middle kingdom can return to its might in commodity demand. CS cuts through all the cyclical factors and asks whether China's mighty demand for commodities will return in the medium term - their answer is 'No'. As the economy shifts its growth engines away from infrastructure, construction and exports toward consumption, especially service consumption, the propensity of demand for commodities is bound to decline. Getting a massage simply does not use as much steel as building an airport.

Credit Suisse: Can China’s mighty demand for commodities return?

In this note, we ask whether China’s mighty demand for commodities will return in the medium term. We think the answer is “NO.”

The golden age of infrastructure investment is behind us now.
The golden age of the housing boom is behind us now.
The golden age of exports is behind us now.
The golden age of policy stimulus is behind us now.

but...

One more leg of urbanization is expected.
Further acceleration in policy housing is likely.

still...

Trend growth in the next decade is projected at 7% to 8% versus 10.7% in the past decade.
Growth engines will likely shift from exports and infrastructure to consumption.

which means...

It should take less commodity consumption for each unit of GDP.

Posted Image

1) The golden age of infrastructure investment is behind us now.

After ten years of very aggressive build up of infrastructure, the penetration of highways, railways, airports and power stations has surged. Infrastructure investment is down by 25% in the 12th five-year plan from the 11th five-year plan, after adjusting for inflation. The actual moderation could be much bigger, in view of the very aggressive infrastructure investment by the local governments as part of the fiscal stimulus in 2009.

Posted Image

2) The golden age of the housing boom is behind us

Home ownership in China has reached 67% in the urban sector, above the world average now, and would be much higher if the rural area were included. Housing prices are getting out of reach for those who rely on a regular salary. An average person in China needs to spend ten years of salary to pay for an average apartment, versus the world’s average of about six years. The affordability ratio for local salary earners in most tier 2 and tier 3 cities is not much better.

Posted Image

3) The golden age of exports is behind us

Cyclically, exports seem to be on a rebound, but structurally, China’s competitiveness has been weakened because of surging salaries among the migrant workers and continued appreciation of the RMB. It may take ten years before the legend of the “world’s factory” disappears, but the best times are certainly behind us.

Posted Image

4) The golden age of policy stimulus is behind us

Beijing may launch some minor fiscal subsidies for consumption and reshuffle the tax code. Restrictions on bank lending has eased a little too. But there is no way that the government will launch another massive stimulus similar to what it did in 2009. The consensus among the decision makers is that the package of stimulus in 2009 did more harm than good to the long-term sustainability of growth.

Posted Image

What is not over and what may accelerate in the next few years?

1) Urbanization has another leg to go.

The industrialization model in China is changing. Over the past two decades, industrialization and modernization has been done through funneling rural labor to the coastal areas and export industries. In the next two decades, we believe industrialization and modernization will take place locally, at the village level. That would create new needs for commodities.

2) Policy housing construction will likely accelerate.

The central government realizes that high housing prices have become a source of social instability, so it is committed to provide subsidized housing to its citizens, with a target of building 36 million units during the 12th five-year plan (2011-2015). Progress was disappointing last year, as local governments have neither the money nor the incentive to deliver. We think policy housing construction is likely to accelerate over the next two years, though it is not clear who will pay the bill at this moment.

Posted Image

The big picture is that China’s trend growth is expected to slowdown to 7% to 8% over the coming decade, from 10.7% recorded in the previous decade. As the economy shifts its growth engines away from infrastructure, construction and exports toward consumption, especially service consumption, the propensity of demand for commodities is bound to decline. Getting a massage simply does not use as much steel as building an airport. In 2011, it took 71 million tones of steel for one percentage point of GDP growth – that is unheard of in the world’s modern history. We project that the ratio should moderate to 30-40 million tones for every percentage point of GDP growth by 2020. There will be cyclical ups and downs, which may affect China’s demand for commodities and commodity prices, but we think China’s supercycle for commodities is behind us.
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China's mills cut growth forecasts by almost half

Peter Cai
March 14, 2012

THE Chinese steel mills that have driven Australia's resources boom for the past decade have halved their forecast growth rates for the next year, as China comes to terms with an economic slowdown. Moody's Investors Service, one of the biggest rating agencies in the world, has warned that China's growth rate in steel demand will slow sharply to 5.7 per cent this year, almost half the 11.1 per cent average rate of the previous three years.

The view is shared by the China Iron and Steel Association, which represents the country's big steel mills. CISA has halved its growth estimate for the industry from 8 per cent last year to just 4 per cent. The news will have a big impact on two of Australia's most lucrative export earners - iron ore and coking coal - which account for 60 per cent of national export income.

Read more: http://www.smh.com.au/business/chinas-mills-cut-growth-forecasts-by-almost-half-20120313-1uyji.html#ixzz1p2GxPeM7
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dave289
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So 60% of australias export income will half by next year , should be good for jobs , not to mention house prices .

These mining wages will then be forced down for two main reasons , the first is that these mining companies will be forced to lower wages as their income is cut in half , they cant take too much out of company profits or shares will get hammered worse . As more jobs are lost elsewhere ,there will be more competition for these mining jobs and they want have to offer so much to get them there.

While I was expecting the stock market to have a bit of a rally today , only because overnight the US dow went to over 13,000 for the first time in I think so 2007 , so very surprising considering there still in free fall, but with this lastest data from china I dont know what to expect today, other stocks may rally and mining stocks may get hammered , should be an interesting watch today on the market , could go up or down quite a bit either way .
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Frank Castle
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I'm surprised crazy dave didnt spruik the virtues of buying in Dyfart, Moronbah and Backwater, after all if we have 50% drops in mining , prices in these towns surely must increase by over 20% this year. :lol:
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However , I do believe that there are quite a few mining towns for which you will see growth , some over 20% this year . I believe both Dysart and Moranbah will go up by over 20% this year .

http://australianpropertyforum.com/single/?p=8291994&t=9395248
Edited by Frank Castle, 14 Mar 2012, 11:38 AM.
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audas
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Ahem,

As I have been trying to point out for weeks,...Thanks for the Back Up Alex....always appreciated.


The Chinese steel mills are down something like %85 in profits, yes thats right.

The Chinese government is looking to shut down 40 mills across the country !!!!!

China has Australia over a very uncomfortable barrel - and they are about to bring out the gimp.
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Andrew
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audas
14 Mar 2012, 11:50 AM
Ahem,

As I have been trying to point out for weeks,...Thanks for the Back Up Alex....always appreciated.


The Chinese steel mills are down something like %85 in profits, yes thats right.

The Chinese government is looking to shut down 40 mills across the country !!!!!

China has Australia over a very uncomfortable barrel - and they are about to bring out the gimp.
Come on audus, the MSM says this will go on forever, AUD to 1.50, everyone can move west and get jobs in mining, etc etc ;)
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GLD
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dave289
14 Mar 2012, 09:59 AM
So 60% of australias export income will half by next year , should be good for jobs , not to mention house prices .

These mining wages will then be forced down for two main reasons , the first is that these mining companies will be forced to lower wages as their income is cut in half , they cant take too much out of company profits or shares will get hammered worse . As more jobs are lost elsewhere ,there will be more competition for these mining jobs and they want have to offer so much to get them there.

While I was expecting the stock market to have a bit of a rally today , only because overnight the US dow went to over 13,000 for the first time in I think so 2007 , so very surprising considering there still in free fall, but with this lastest data from china I dont know what to expect today, other stocks may rally and mining stocks may get hammered , should be an interesting watch today on the market , could go up or down quite a bit either way .
Dave, there's another dynamic going on behind the scenes.

Take a look at the USD index, there's a link between terms of weakness and strength and the Dow.

Right now the USD index is trading @ 79 and change, it may make a move to the upside, around 81 and a half or it may not.

The chart is looking weak on the weekly and the monthly.

This is significant because unless we have more financial jitters around the world, there is nothing stopping the dollar from turning back towards its previous low band between 73-74 this year.

In that case its reasonable to expect the Dow to be up around 14,000, and oil, gold and silver + commodity prices to be well supported at these levels. I would expect the AUD to be well supported between AUD/USD 0.96 and current levels also. Currently, the AUD is %35 more valuable than it was since 2009 compared to the USD index basket of currencies and about %5 more more valuable than Jan 2011. There's also scope for further AUD/JPY strength.

Going forward - if the USD index heads back towards its lower trading range of 73-74, I can see the AUD supported at this level and we can can expect a stab at taking out its previous high of 1.10.

If that means further short term job losses etc, you might be right. But i think a strong currency is a good buffer to have against rising commodity prices and producer prices (read: cost of living). If the AUD was 80 cents we'd have $2.00/l? petrol and retail net profits could be even worse. Since the whole world is printing, it's going to be an increasing net benefit to have a strong currency.

China is a big problem, but i still believe a lot of their current demand will be replaced by purchasing power if they allow their currency to continue to appreciate. The inflation you see in China is mostly related to monetary policy, they import US inflation with their central bank USD/RMB currency peg. If central bank policy changes and they continually run deficits and start eating in to their reserves - the picture will change.

AUD VS CNY VS USD
Tick AUD/USD to see the difference beween the CNY and the AUD which is freely floating.

Then there is this take on the situation; Chinese government says that the exchange rate will follow the balance of trade - in favor of a deficit.
http://www.ft.com/cms/s/0/972b0948-6c33-11e1-b00f-00144feab49a.html?ftcamp=published_links/rss/home_uk/feed//product#axzz1p38VnkVf

RE resources boom - don't forget, China isn't the only player in Asia.

I think we'll see strong pressure on the Aussie government to run bigger and bigger deficits to fund their promises. This ties in with the currency / commodity dynamic we're probably looking at going forward.

My bet longer term (5-10 years) is that the appreciated AUD is here to stay. Yes, there may be a flight to the USD with more Euro trouble, but where is the dollar going to be if there is a flight from the dollar?
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GLD
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GLD
14 Mar 2012, 12:35 PM
Dave, there's another dynamic going on behind the scenes.

Take a look at the USD index, there's a link between terms of weakness and strength and the Dow.

Right now the USD index is trading @ 79 and change, it may make a move to the upside, around 81 and a half or it may not.

The chart is looking weak on the weekly and the monthly.

This is significant because unless we have more financial jitters around the world, there is nothing stopping the dollar from turning back towards its previous low band between 73-74 this year.

In that case its reasonable to expect the Dow to be up around 14,000, and oil, gold and silver + commodity prices to be well supported at these levels. I would expect the AUD to be well supported between AUD/USD 0.96 and current levels also. Currently, the AUD is %35 more valuable than it was since 2009 compared to the USD index basket of currencies and about %5 more more valuable than Jan 2011. There's also scope for further AUD/JPY strength.

Going forward - if the USD index heads back towards its lower trading range of 73-74, I can see the AUD supported at this level and we can can expect a stab at taking out its previous high of 1.10.

If that means further short term job losses etc, you might be right. But i think a strong currency is a good buffer to have against rising commodity prices and producer prices (read: cost of living). If the AUD was 80 cents we'd have $2.00/l? petrol and retail net profits could be even worse. Since the whole world is printing, it's going to be an increasing net benefit to have a strong currency.

China is a big problem, but i still believe a lot of their current demand will be replaced by purchasing power if they allow their currency to continue to appreciate. The inflation you see in China is mostly related to monetary policy, they import US inflation with their central bank USD/RMB currency peg. If central bank policy changes and they continually run deficits and start eating in to their reserves - the picture will change.

AUD VS CNY VS USD
Tick AUD/USD to see the difference beween the CNY and the AUD which is freely floating.

Then there is this take on the situation; Chinese government says that the exchange rate will follow the balance of trade - in favor of a deficit.
http://www.ft.com/cms/s/0/972b0948-6c33-11e1-b00f-00144feab49a.html?ftcamp=published_links/rss/home_uk/feed//product#axzz1p38VnkVf

RE resources boom - don't forget, China isn't the only player in Asia.

I think we'll see strong pressure on the Aussie government to run bigger and bigger deficits to fund their promises. This ties in with the currency / commodity dynamic we're probably looking at going forward.

My bet longer term (5-10 years) is that the appreciated AUD is here to stay. Yes, there may be a flight to the USD with more Euro trouble, but where is the dollar going to be if there is a flight from the dollar?
Quote:
 
AUD VS CNY VS USD
Tick AUD/USD to see the difference beween the CNY and the AUD which is freely floating.

I should add for those not familiar with Google finance, that the difference is %35-40 percent.
That is, when you compare the appreciation of the Australian Dollar to the US dollar, and the appreciation of the Chinese Yuan / US dollar,
the Australian Dollar is %40 more valuable against the USD than the Yuan.

The question is, with a freely floating exchange rate - where would the Chinese currency be?
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dave289
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Frank Castle
14 Mar 2012, 11:37 AM
I'm surprised crazy dave didnt spruik the virtues of buying in Dyfart, Moronbah and Backwater, after all if we have 50% drops in mining , prices in these towns surely must increase by over 20% this year. :lol:
Ah frank still saw about the other day obviuosly,where you were proved horiibly wrong once again. :D

This is why frank should be barred from the forum . he has stated something I said, and then deleted evrything else else around it, which clearly states that it would only go up if commodity prices did not collapse as well as the dollar going to high for which I said was a big possibilty . so I have been clearly taken out of context here by frank because this is his only way to get back at me for shitting on him once again yesterday.

Frank has made out like this is the advice that I have given, when it was not . I know some people would take more attention to what I say sometimes and this should simply not be allowed as it is bad advice .

Alex , could I please ask that you delete franks post, as he is making out like I have given bad advice by taking me out of context , and this is not good for the forum or members of the forum . If I was ,you I was piss him off for doing so not only becuase he is ruining the forum but also just trying to cause trouble . I have now had to waste time with this moron once again for the sake of everybody else ,so he does not confuse them with his bullshit . instead of respond to the GLD who has spent some time to have a think about things unlike most and has given us his take on things . I will have to respond to this later as I have to go out for a while , but well done Gld and thankyou for your thoughts and input , wish there was more of this without all the other bullshit.

Just curiuos , I am the only one who thinks frank castle removal would make the forum a better place . I will show you all the extent of which zaph has gone to just to cause trouble cause his life his so dismal , but I dont have time now. You WILL be shown to be the lying born loser that you are later or tommorow zaph , just so you know what you have to look forward to . Zaph you know I answered the question in great detail , as usual . I will ask you later in that thread to direct us to where you asked me that question some time ago , if it was you ,I dont remember , but I remember somebody asked and I answered it very clearly , so will ask you to show you where you asked me. Ah see you must be cringing now , you know know what will happen and why you are so stupid , looking forward to it , sure you are'nt :bye:
Edited by dave289, 14 Mar 2012, 02:23 PM.
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Frank Castle
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dave289
14 Mar 2012, 02:21 PM
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Nice rant crazy dave
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