Apart from the results of the Indian election, there was a collection of not so positive news from Asia late last week and over the weekend.
Foreign investment into China continues to fall, and there are signs of growing Chinese government unease at an oversupply situation developing in the politically and economically sensitive steel sector.
At the same time Japan’s machinery orders, a very sensitive indicator to production, exports and growth, have resumed falling after a brief rise earlier in the year.
And, the Hong Kong and Thai economies are undergoing severe contractions, according to figures released on Friday.
Last week’s flow of Chinese monthly economic data for April was mostly poor to questionable: exports and imports down again for a sixth month, industrial production positive, but down from March’s rebound from the depressed levels of January and February.
Friday saw figures showing that foreign direct investment (FDI) fell 21% year on year in the first four months on this year. It was down 20.6% in the March quarter of this year, so no improvement.
The figure fell to $US27.67 billion and in April alone, FDI dropped 22.5%, from April 2008, the seventh straight monthly fall. The decline though eased month on month to 9.5% from February.
The Finance Ministry figures show that the number of new foreign-funded ventures fell 34.2% over the four months to April, from the same period of 2008.
So not everything is rosy in China’s spluttering economy.
China’s steel industry is a key indicator: its health tells us just how well the economy is going and how well big companies like BHP Billiton and Rio Tinto in this country are travelling, and how well they will travel in coming months.
Even though imports of iron ore are running above 57 million tonnes a month (record levels), oversupply is feared in May and June (Source).
April’s imports of iron ore were up a massive 33% on April of last year, when steel production was much higher.
That was amplified by news that Chinese steel production fell 4% in April: the demand is just not there.
The news isn’t good for BHP Billiton or Rio Tinto which have much riding on a rebound in China.
Nor was the prediction, reported over the weekend by Bloomberg, that the steel industry in China would lose money this year.
"China’s steel industry may post a loss this year, Baosteel Group Corp. Chairman Xu Lejiang said at a conference in Shanghai. Xu said the Chinese steel industry is oversupplied and faces severe structural problems that have been worsened by the financial crisis," Bloomberg reported.
Prices are down sharply for iron ore and coking coal, now those record levels of imports (much of it coming from purchases on the spot market), is raising the prospect for a sudden cutback in orders in a month or two’s time or an almighty slump in the steel industry as a whole as oversupply overwhelms poor demand and lower prices
A report Friday in the China Securities Journal suggested that the central government had told the bank to cut lending to steel companies wanting to expand production.
The government-issued order was reported to be aimed at cutting or stopping lending to steel producers "still expanding production capacity without considering actual market demand", the China Securities Journal reported.
The actual notice, which has not been made public, reportedly also called for banks to curb or cut off loans to mills with outdated technology.
In addition, it told iron-ore importers to "correctly control the volume and pace of iron-ore imports in line with the actual demand of domestic steel up 22% from the first four months of 2008, when steel output was much higher and demand stronger (though starting to weaken).
And state media reported on Thursday that the China Iron and Steel Association planned to investigate surging imports after that 33% jump in iron ore imports last month.
"Amid the weakness in the domestic steel market, the imports in April were more than double the normal demand," the Shanghai Securities News reported, citing Shan Shanghua, secretary general of the industry group.
At the end of March, the composite price index of China’s steel market was 97.59 points, 31.4% lower than a year earlier.
Overall, domestic steel prices have been falling continuously and are currently lower than 1994 levels.
The World Steel Association forecast in April that China’s apparent steel demand is likely to fall 5% this year because of the fall in exports. It would be the first fall since 1995, when a real estate bubble burst.
So we now have the unlikely situation of surging imports, falling production and lower prices. That sounds like a steel crash, not a new steel boom and a repeat of 2005-2008.
No wonder the government is worried.
The impact of the slowdown in the economy can be seen in China’s government finances.
Thursday the Ministry of Finance said that revenue fell 13.6% in April, from a year earlier, to 589.72 billion Yuan (US86.47 billion; that pushed January-April revenues down almost 10%. The
