As demand stalls, steel and coal producers sell pigs14 June, 2012, 12:07. Posted by Zarathustra
Recently we have been hearing more and more stories about how weaker the Chinese economy has got. Or more precisely, how it appears to be even weaker than official statistics suggests.
We have heard about the government’s approval of building more steel production capacity even though there already is massive excess capacity in steel, and that steel traders have either gone bankrupt or scaling down their operations. Earlier we have also heard that Wuhan Iron & Steel is apparently venturing into pig farming as the steel business is no longer profitable.
Recently, there is also evidence that as electricity production growth stalls and as power plants’ coal inventory remains high, coal inventory is rising in ports and warehouses as no one is buying.
China Securities Journal reported that as inventory keeps rising, coal price keep falling. According to the report, coal inventory in the five biggest power plants in Guangdong power grid now hits 20 days or more, not only way higher than the minimum requirement of 7 days, but also way higher than normal required level of 15 days. Coal trading insider told the journal that the situation now (of having no customers buying coal) is somewhat similar to the coal “crisis” in the year 1997 (note: that’s the year of Asian Financial Crisis).
On a irrelevant note, Shanxi Coking Coal Group, a leading coking coal producer, is venturing into pig slaughtering business with Shuanghui Group, one of the biggest food processing companies according to 21th Century Business Herald. According to the report, the two companies will build a pig slaughterhouse with an annual output of 2 million dead pigs.
Coking coal, incidentally, is used mainly in steel production. With steel inventory at steel mills remain high and production set to fall, it is not surprising that their demand for coking coal is also falling, just like the demand for coal from power plants. And curiously, as demand for steel (and hence coking coal) stalls, Wuhan Iron & Steel and Shanxi Coking Coal Group both have chosen to do the same thing: selling pigs.
We look forward to the day when shipbuilders and real estate developers start selling pigs…