In an article about emerging credit-quality problems in China, which isn’t a particularly new concern, The Journal cites an interesting fact regarding steel:
That flood of borrowed cash has been channeled into new infrastructure and production capacity. These investments will account for up to half of China’s gross domestic product this year, according to some estimates.
A key question is whether China needs all of this investment. Analysts at the London hedge fund Pivot Capital Management say that China already has enough idle steel-production capacity, for example, to match the steel output of Japan and South Korea combined.
Meanwhile, the ratio of investment to GDP is rising, suggesting China’s investment is less and less efficient, says Edward Chancellor at Boston asset-management firm GMO.
You can put this in the bear’s column for global commodities. While some analysis suggests a record building boom going on, there’s plenty of evidence that a big period of stockpiling, and commodities importing is waning. And if there isn’t enough end demand to use it all — say, to turn iron ore into steel — then get ready for a monster overhang.