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Metals Face Large Pressure From China

|Includes: GLNCY, LUNCF, LUNMF, Rio Tinto plc (RIO)

Weak demand from china and rising costs in the business have hit the commodity business hard lately. Particularly Iron ore and Copper where China consume 40 % and 66 % of worldwide consumption according to Rio Tinto estimates. The question is whether Chinese banks faces a long term issue through bad loans, as property prices and leverage levels reach all time highs. As more banks are willing to lend with little assumed risk, the banks happily support the bubble until manufacturing and volatility in demand declines from western countries which could lead to the default of banks. This would spur a tsunami in the Chinese banking market. Just one of the banks have to fail to set off an economic avalanche because other banks often give out insurances as securities or other instruments in case the banks default. This could cause a systemic shutdown of lending to banks and thus consumers until government has implemented a way out of the crisis. Also I see the high lending ratio to GDP to produce artificial real estate prices, which as noticed now by many will lead to government intervention as in form of increased lending restrictions by banks. This should tamper consumption demand. All of these factors put pressure on commodities and should do for some quarters ahead.

From the corporate side, we have seen many significant developments.............

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