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Matthew Cowie
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Financial Analyst for Mutual Fund Investor Guide; currently living in Beijing, China. Previously worked as a financial analyst for for Fidelity Independent Adviser Dion Money Management. Articles written for FIA and DMM appeared on CNBC.com, Yahoo Finance, theStreet.com and Seeking Alpha.
My company:
Mutual Fund Investor Guide
My blog:
Investing in Chinese Stocks
  • China Pukes Steel 0 comments
    Jul 21, 2012 10:43 AM | about stocks: SLX, PKX

    The Baoshan Steel Index tends to move slowly, with changes of 1 or 2 points on most days, as it is an index of prices from contracts, not a financial index. Still, like the Baltic Index, it's prone to periods of volatility and we are appear to be entering another such phase. Prices are currently at their lowest since December 2009.

    Here's the result of collapsing prices in China, themselves result of weak demand: China's rising steel exports slam Asian producers

    Europe used to soak up most of China's steel exports, but the region's protracted debt woes have forced producers like Baoshan Iron & Steel to turn their shipments to destinations closer to home. The wave of cheap Chinese exports has fuelled price undercutting among Asia's top mills, which are expected to report profit slumps for the three months to June. POSCO, backed by billionaire investor Warren Buffett, is expected to see its operating profit fall by a third from a year ago, analysts say. "Before, China was exporting 2 million tonnes per month and now it is suddenly 5 million tonnes. Given that domestic demand in their respective countries is already not particularly strong, they (local steel producers) are clearly afraid," said Helen Lau, a commodities analyst at UOB-Kay Hian in Hong Kong.

    That's one heck of a swing to hit the market. Chinese speculators have accumulated copper, nickel, coal and other commodities, what's going to happen in those markets if China starts exporting those hoards? China's Baosteel cuts main steel product prices for August

    Baosteel's pricing decisions are generally regarded as a bellwether for the industry. While demand generally weakens in China's hot summer months as construction projects slow, sluggish economic growth and a fragile global economy are putting particular pressure on the company this year. China's steel industry is expected to see low demand in July and August until a seasonal pickup in September, and expectations of more efforts by Beijing to boost the economy are unlikely to provide an immediate boost to steel prices, analysts say.

    That drop off at the start of the chart above came as the real estate market felt its first chills. If the expected pickup doesn't arrive, prices will crumble.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: China Stocks: SLX, PKX
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