Tuesday, October 28, 2008

Supply / Demand gone upside down in China?

First off, China finds some serious amount of natural resources in their country. It will take time to be mined & shipped (needs infrastructure) but it does have global implications for supply/demand for natural resources over the long-term. They want to import less and use more domestic sources of commodities.


Since the beginning of September, major Chinese steel manufacturers have announced to slash production upon falling steel prices on the domestic market.


The Aluminum Corporation of China Ltd. (Chalco), the country's largest aluminum producer, said on Wednesday it would cut production in line with falling demand and prices. The total capacity reduction would be 720,000 tons a year or 18 percent of the company's annual production, said a company statement.


My take: It should be noted that the Chinese were GOBBLING up every conceivable natural resources before the Olympics to feed their economy. Since then, they have really quieted down and, as supply/demand levels are coming back to true equilibrium, the volatility in the commodity and financial markets has been STAGGERING.

I personally think they got wind of the slowing economy and put the brakes on their purchases of raw materials. After all, they would bring in the raw materials and export products worldwide. Their economy is 50% export right now from what I have read. They are trying to stimulate internal, domestic demand to offset the weakness in their export economy. I expect quite a few more rate cuts in China over the next 1-2 years, which will stimulate their consumer economy at some point.

Dan Ross

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