Meanwhile there’s the proverbial good and bad news from China, with the bad of a type that will have considerable ramifications if true.
But first the good, and as is the way with China, good news is leaked ahead of the normal time of release and the bad news is shuffled out on time.
And so it has again been with the Chinese inflation rate.
For the third time in as many months, there has been a strategic leak of the news that China’s consumer price inflation last month fell last month to be down from the 6.3% the month before and the worrying 8.7% in February when it was boosted by impact of the terrible winter storms which caused price spikes in the cost of food, power and a wide list of other products.
In fact newsagencies said the inflation rate may have eased to below 6% in August, which would be the fourth straight month of deceleration.
State media reported, (citing a government economist) that slowing growth in food prices and a moderate slowdown in the overall economy helped curb price increases, the China Securities Journal reported, citing Fan Jianping, chief economist of the State Information Centre.
But producer prices remain high: the hit 10% in July and the same economists expected little, if any change in August, which would at least be a small bit of good news in that the price surge is easing.
The figures, to be released next week, will show that the intense competition in the Chinese retail market is forcing companies to eat profit margin to make sales.
But the lower CPI will also reflect the rapidly easing cost of food, especially pork and some vegetables which were the main drivers in the rise in price pressures on consumers for much of the last year.
But that’s the good news: the bad news can be found in two separate reports.
This one from Bloomberg yesterday which said that Wuhan iron and Steel, China’s fifth-biggest steelmaker, and Liuzhou Iron & Steel Group have formed a venture in Guangxi, China.
"Wuhan Steel will own 80% of the venture while the local government in Liuzhou, Guangxi will have 20%.
Bloomberg the venture will have registered capital of 44 billion Yuan ($US6.4 billion), which is a fair whack of money.
"Wuhan Steel, the owner of Wuhan Iron & Steel Co. in the central province of Hubei, will pay for the stake in cash, while the local government will use Liuzhou Steel’s assets to pay for its holding, according to the statement."
Does China really need a new steel plant, now?
And then there was this report in the Financial Times and in a couple of other outlets over the last day.
"Growth in Chinese steel consumption is expected to slow markedly in the second half of this year amid weakening demand from the construction, household appliance and automobile industries, according to industry experts.
"Yang Siming, general manager of Nanjing Iron & Steel told a steel conference in Xiamen this week that most Chinese steel mills had cut output last month, because of shrinking demand and high costs of raw materials.
”We’ve been cutting production since last month, and according to my knowledge, most domestic mills are cutting output too,” Mr Yang said.
"According to Steel Business Briefing, the steel consultancy, steel consumption in China is forecast to grow by only 8-10 per cent in the second half of this year, as little as half the 16 per cent growth rate for the first half of 2008.
"Analysts predict that the reopening of steel mills that were closed during the Beijing Olympic games will do little to boost second half output."
So I suppose that will have analysts reaching for the phones and their models for BHP Billiton, Rio Tinto and those other companies presently riding the steel raw materials boom in China and elsewhere.
If true, at worst this means no more price rises for a while: its just too early for this to be a negotiating tactic, although the 2009-10 price talks are due to start around late November.
If true and if the slowdown becomes worse, then the prospects of a price cut next year will increase, and that’s just the thing the Reserve Bank and others would prefer not to see just as our economy’s health is dependant on the boost from the improved prices for coal and iron ore this year.
So the expansion plan by Wuhan might not happen, might be slowed down, or it might be completed and when it is in 18 months or so, add more unwanted capacity to an already oversupplied sector. if that happens, it would add a bit more downward pressure on pricing.
China’s metals production picture has been confused by shutdowns and other plant idlings because of the Olympics, pollution reasons and a need to curtail output to try and boost prices and save power.
That has been prevalent in the copper, lead, zinc and aluminium industries where the cuts are due to run out in the next month. If continued you will know that China has ample stocks of these metals for current levels of demand or can source them more cheaply from world markets.
Steel is different: the closure of plants seems to be more linked to taking older plants off line and improving pollution.
But there now seems to be recognition that there’s a fall in demand for steel products in China with construction, household appliances and cars all seeing signs of slowing demand. Shipbuilding remains buoyant if only because of the vast backlog yards in China, Korea, brazil and other countries have at the moment.
The knock-on effect of weakening demand for steel is already being felt in the shipping mar
