China is in the Red: the white-knuckle ride begins

Australia has been riding the boom created by China's appetite for resources, but the Asian giant is running out of steam.

The trees at West Rock Village are mostly dead and the streets are caked in dust and clogged with gritty factory haze.

But the villagers are not worried about pollution; they are scared that one day soon it might all blow away. They knew well before the outside world that the factory was in trouble and China's steel-driven economy was on the slide.

"If the factory goes down, my daughter, my husband and my son will all be unemployed,'' says 59-year-old grandmother Han Chunwen.

Mrs Han's husband has worked all his life at the steelworks across the road. He maintains the conveyor belts that haul steel-making coking coal to the hot ovens before it is dumped into blast furnaces to smelt the iron ore.

Mr Han still has a job, for now.

His 36-year-old daughter works there as a chemical engineer, analysing the quality of local, Brazilian and Australian ore. In the early years, the rusty state-owned factory was always shutting down and laying her off.

But eight years ago a young entrepreneur called Ding Liguo arrived and transformed the place into a dynamic private enterprise called Delong Steel, now making 3 million tonnes of steel each year for highway barriers, car chassis and oil pipelines.

"When Ding arrived my daughter's salary started to rise," says Mr Han. "He is formidable." On September 1, after eight boom years, his daughter was told to take an extended "rest" without pay. She knew the factory was in trouble.

In March Mr Han's 20-year-old son started work, loading the dust-like iron ore "fines" into compactors so that it did not all blow away when dropped into the furnaces. On September 27 he was stood down on a fortnightly roster of unpaid leave.

"If the factory closes this whole village will have nothing to eat," says Mr Han. "Do they have the money to keep buying the iron ore?"

That is the multibillion-dollar question to which Australia's Reserve Bank governor, Glenn Stevens, needs to find an answer.

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The East is in the Red: the white-knuckle ride begins | smh.com.au

 

Firstly, who wrote the article? I put very little faith into something even the author won't put their name on (although i could be going blind and missed it on my 3 searches).

Secondly, the important paragraph is this one:

"Traders who had been selling iron ore at around $US200 a tonne on the Tangshan spot market were struggling this week to make a sale at $US80. The Newcastle spot price for power-generating coal has plunged from nearly $US200 to $US110. Copper has fallen more gradually, by one half, and nickel by three-fifths."

From what i have heard, China is making a big effort to force raw material prices down to to get the traders and speculators out of the market so they can have more control over pricing with the BHPs, RIOs and VALEs. I think the dumping of materials options is not an indication China (or India) for that matter are slowing down demand, but that the traders are being burned by having bought in high, not understanding the industry or China's motivations, and dumping out scared. China is still building a city the size of Brisbane each month and laying enough 6 lane highways to cross australia 30 times. Their demand for resources hasn't dried up in the last 3 months, they are strategically forcing prices to drop.

The whole article sounded like it would be better placed in the social pages than the business section.

Benny

 

Benny

I can't comment much on the reliability of what's written in this article.

I personally believe that this slow down won't be long lasting.

I think China always had the power to bring down iron ore prices but now is in a better position to do it.

Cheers

 

exactly right!