A Remarkable Slowdown In Activity At China's Steel Warehouses

The evidence of China’s inevitable slowdown which is morphing into a hard landing is piling up as time passes.  They include some direct hard data of the remarkable slowdown, indirect gauge of the inevitable slowdown (e.g. Macau gaming revenue), and anecdote that bulls will dismiss.

Last time, we posted a video of ANZ’s economist visiting ports ands warehouses and saw massive iron ore inventory. 

Today, CLSA tells us that they just visited a number of steel traders and warehouses and found incredibly quiet activities.  Trading volume for April and May was roughly 50-60% of “normal” according to one trader, with his key customers being

an elevator manufacturer, a machine processing company, a metal shelf maker (for supermarkets) and an auto part company.

Another trader thinks while demand from infrastructure projects could be rather more robust:

large key infrastructure projects are mostly run by big SOE contractors, strict sourcing requirements and unfavourable payment term made it hard for small steel trader to supply these projects.

Traders are telling CLSA that trading the market has been very quiet on very poor demand. One warehouse was almost empty with almost no activities as steel traders are getting pessimistic that they have been trying to reduce inventory for a while (However, while traders are destocking, steel mills are not. Their inventory is increasing).

The matter is made worse as banks are trying to tighten credit to the steel industry (because the government told Chinese banks to tighten lending to the steel industry, perhaps).  Since late last year, according to CLSA, some traders have become bankrupted.

Here are two pictures from CLSA, which show that one of the warehouses they visited regularly, before and after the closure.



Photo: CLSA




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