Readings: Steel prices, SWF Speculators, Chinese value
The extension of the moratorium on steel price hike beyond the first week of August seems to be testing the patience of steel majors. Once the extended moratorium expires, steel producers may increase prices by 5%.
. . . the government is planning measures to cut duty and lower input costs for steel companies. The cost of raw materials has gone up considerably, with the prices of iron ore and coking coal jumping by 65% and 200%, respectively.
I have my doubts - see my previous post: Steel production, consumption & price trends, and the latest from Bloomberg: Jindal Stainless Cuts Prices, Following Posco, as Nickel Drops
- Washington Post: Sovereign Funds Become Big Speculators
Sovereign wealth funds, the massive investment pools run by foreign governments, are now among the biggest speculators in the trading of oil and other vital goods like corn and cotton in the United States.
. . . the CFTC is not detecting the growing influence of foreign funds because they invest through Wall Street brokers known as “swap dealers” who often operate on unregulated markets . . . sovereign wealth funds have moved into U.S. commodity exchanges for profit, not to accumulate goods. In general, they make these investments through index funds.
About two dozen countries have established or are in the process of forming large funds, including Iran, Norway, Singapore, Kuwait, Australia, Russia and Libya. While precise data about each of the funds can be difficult to obtain, Wall Street analysts say their collective value has exceeded $2 trillion and will probably grow at least fivefold by 2012.
- Investors Insight: A Value Investor Looks At China
Analyzing the Chinese economy while it is growing at superfast rates is like analyzing a credit card company or a mortgage originator during an economic expansion - all you see is reward - the growth. But the defaults - the risk - are masked by a healthy economy and constantly increasing new business that is profitable at first. The true colors of that growth only appear after the economy slows down and new accounts mature.
Industrial production accounts for 49% of GDP, double the rate of most developed nations (i.e. industrial production for the United States is 20.5 % of GDP, UK 18.2% , and Japan 26.5%).
In the past “stuff” stocks were cyclical, their margins played a very predictable foxtrot of bouncing together with the whims of the US economy. Today they are behaving if as Google is their middle name - their sales are climbing in double digits, margins keep expanding and now they are called “growth” stocks. They are not. It is just Chinese late stage growth obesity, which has disproportionately impacted the demand for stuff, creating an expectation that the “growth story” will continue forever.
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