Many countries that relied heavily on exports as a growth strategy are now geared up to provide goods and services to heavily indebted countries that no longer have the will or the means to buy them.

William White, former chief economist of the BIS.

… investments in fixed capital formation (think new aluminium plants et al.) … made up 95% of Chinese GDP growth in 2009.


Some more stats regarding the Chinese Commodity Conundrum, specifically steel and aluminium:


… despite providing less than 8% of global GDP, China accounts for more than half of the world’s steel production and more than half of global seaborne iron ore freight.

… Chinese steel prices at the end of 2009 traded below their production cost.

… steel production in America during January to August 2009 (a period of post-collapse stabilisation and the famous cash-for-clunkers program) was on a par with output in 1938, when GDP was a mere 7% of its current size.

… import license applications to sell steel in the US, the world’s largest export market, rose 24% in November 2009 (mostly from Mexico and Korea).


The aluminium situation mimics that of steel, but with an even mightier inventory overhang:

… Four and a half million tons reside at the London Metal Exchange, perhaps 20% of world ex-China annual capacity. It is probable that 75% of this surplus stock is accounted for by financial players exploiting a contango.

… a couple of million tonnes of inventory remains unaccounted for on the world stage and are believed to be hidden in cheaper warehouses in Russia. 

… the Chinese have stopped importing and are eager to ramp up domestic aluminium production. They have the capacity to produce another 13mt annually, which is equivalent to 52% of global production.

… the big Russian players like Rusal are under intense pressure from Putin not to cut capacity and are rumoured to be surviving only by not paying their electricity bills…

Hat tip: Eclectica http://www.eclectica-am.com/template.aspx?target=home


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