Is China getting ready to dump cheap metals products (semi-finished and finished) on the North American market? Perhaps, if you read and believe this story over on Metal Miner. Written by my blogging-partner-in-crime Lisa Reisman, the post notes that, "Several weeks ago my colleague Amy reported that the provincial government in Yunnan province would begin buying up metals to help save the local economy. This week, Reuters reported that the local government would purchase these metals using bank loans secured against smelters' metals stocks … the provincial government expects local metal smelters to get loans from banks to fund the purchases, and it will subsidize interest paid by smelters. The stocking up of reserves will be done between December 2008 and the end of 2009." Translation: with inventories high (and no way to pay the debt service) producers will sell these items at whatever price they can fetch.
As Lisa opines, "What is more disconcerting (and very likely to happen) is for China to re-evaluate its export tax and VAT rebate schemes. Only this time, the schemes will work in the opposite direction making Chinese goods even cheaper, in the hopes of improved export sales and economic stimulus at the expense of curbing pollution." I look at this whole relationship between the government, banks, workers and companies and it looks like the legitimization of a government-sponsored scheme to keep workers from rioting. So much for capitalist China! But given what's happening over here, perhaps I should not be so critical. And we could all use China to force producers and distributors here to drop their prices even further. After all, nothing cures low prices like low prices -- provided there's at least some demand in the equation.
- Jason Busch