I recently read a Bloomberg article that seems to have gone unnoticed by most people watching China. It says that iron ore imports for June were down 9%, however steel exports rose to their 2008 high! So, this means that Chinese steel producers must be cannibalizing their inventories and domestic steel demand must be falling at a drastic clip.
China already has a gigantic excess steel capacity. This is partly attributable to the fact that there are so many mom and pop operations producing steal in China. This means that production is highly uncoordinated and it makes a situation of massive over-production more likely.
The cause of the fall off in steel demand is a slackening of the auto and construction sectors of the economy. I bring this article to your attention because a decrease in steel demand is a great leading indicator on the direction of construction. It would support the thesis that China is cooling off, and more specifically that the massive building spree that has propped up the Chinese economy is slowing down.
Disclosure: I am currently short FXI.