Posts Tagged ‘Vale’

Negative signals for Chinese economy, will they take heed

CHINA STOCKS FALLWhile the Chinese economy expanded 8.9% in Q3, propped up by easy credit & continued government spending programmes, Europe, US & Japan continue to flounder. The world’s 3rd largest economy has recorded 7.7% overall growth in the first 9 months of 2009, with officials saying they are confident that the much talked about annual growth target of 8% will be acheived.

Last November, as it became clear that the global economy was heading into a recessionary period, central government implemented a 4 Trillion yuan/$586 Bn stimulus package, aimed at cushioning the blow of decreasing exports on the economy whilst also improving industrial efficiency at all levels. Via this stimulus package, China has implemented a number of schemes that impact practically all sectors in the economy;  real estate/construction, transportation infrastructure, agriculture, social services, industry, earthquake reconstruction, technology advancement & rural development being amongst those receiving special focus.

The strategy has paid off, with growth rising to 7.9% in Q2 from 6.1% in Q1 2009. Figures show that industrial output has risen 8.7% in the first three quarters of the year, and 12.4% in July-September, which would seem to signal accelerated demand from domestic purchasers, keen to take advantage of low cost loans to invest in the expected turranround for China in 2010.

However, while surging purchases of coal, iron ore & other raw materials have helped mining majors such as Vale & BHP Billiton the impact of China’s comeback has mainly been one of improving global sentiment than of actually driving growth, according to Stephen Green, economist for Standard Chartered Bank in Shanghai.

“Exports remain the key weakness for the Chinese economy,” Moody’s Economy.com economist Alaistair Chan said in a report yesterday.

Our view is that it is time for those investing in China to pay attention to people like Chan, as investment via the stimulus package has accounted for nearly 88% of GDP growth this year. Central government  investment in factories, construction & national infrastructure has risen by one third in the first three quarters of this year to a record 15.5 trillion yuan (US$2.27 trillion).

As the economy “flourishes”, this heavy reliance on public works & other investments could be masking long term issues for the Chinese economy. Impressive as China’s ability to ride out the storm has been, companies desperately need to restart exports to offset the economies depenfdance on fiscal hand outs.

This week China’s leaders have also  signalled concern over these obvious imbalances in the economy, with the State Council saying policy must shift to dealing with waste and other associated problems of high growth.

“In the first three quarters, the pace of economic growth quickened,” the State Council said “At the same time, we also are clearly aware that there are still difficulties and problems in the economic and social development of our country.”

So it looks as though there are a number of challenges ahead for China in the near future. The stimulus package has obviously been deployed in a much more effective manner than in Europe & the US, however China has not had the crippling effects of masssive credit & huge write downs in it’s nascent financial sector. Although the Chinese have made a number of efforts to open new markets through bilateral trade agreements & an accelerated FTA programme with neighbouring countries in Asia & it’s BRIC partners, it cannot fully offset the real factor of dependancy on Western markets indefinitely.

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Vale to sweep up as Rio “fails” in Chinese espionage fiasco

bulk ore carrierThis post from China News Wrap is significant, as it’s sourced locally from International Financial News, which is a Peoples Party owned newspaper. China informs Australia that proof is irrefutable (sic) Basically the Chinese authorities are not going to back off, having been snubbed over the Chinalco deal. I reckon this will run & be very detrimental for both Rio & BHP Billiton. Anyyone else noted that both firms have been talking up inventories being built up elsewhere ? The real deal is in the 2nd last paragraph of the story :

“At the same time, although Rio Tinto had made statements last week emphasizing that it would ‘continue its iron-ore operations in China’, the actual situation does not seem to reflect this. The overseas media yesterday reported that shipments of spot market iron-ore from Brazil to China soared to record highs in July, which could be related to the Rio Tinto case. Australia seems to have temporarily suspended its exports of spot market iron-ore to China. Data from the shipping company AXSMarine indicates that orders for shipments to China from Australia’s main iron-ore port fell to 12 this month, while orders for shipments from Brazil reached the record high of 31. This means that China’s demand for iron ore is still strong.”

so basically VALE is picking up the slack & would also seem to be enjoying it too, if this piece from Reuters is anything to go by :

Vale Resists China Price Cut Request on Demand Gain

“Politically Vale has done well with its customers by letting the Australians settle first,” Cliff said. In the first quarter, China took 66.5 percent of Vale’s total iron-ore sales of 52.1 million metric tons, up from 32 percent a year earlier.”

Regular readers of MyStockVoice will know that I’m a big fan of Vale, so, long VALE is a no brainer & I have felt that BHP is a little toppy for a week or so, may instigate a short. RTP I’ll leave for bigger fish to swim with.

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Chinese steel market warms up, Vale is perfectly placed

valeCompanhia Vale do Rio Doce (Vale) has recently been climbing back from lows caused by the severe drop in demand for its principle feedstock, iron ore. However, there are signs that the Brazilian mining giant may be turning the corner, as the Baltic Dry Index (BDI) has begun to show some activity off the back of speculation that the steel industry is picking up, particularly in Asia.

Vale said steel output across Asia declined by only 8.9% in the first quarter, despite the Japanese recession. This would indicate continuing strength in Chinese demand, compared to North American steel output falling by 52% & European output declining by 44%. Furthermore, Vale said its first-quarter copper output was unchanged year-on-year, aided by Chinese consumer demand for durable goods.

Steel demand is set to stabilize in the latter part of 2009, leading to “mild” recovery in 2010, according to the World Steel Association. German car registrations in March rose to the highest since 1992 after the government began paying owners to trade in old vehicles for new models. Sales in China of cars, minivans and multipurpose vehicles rose to a record in April. Car makers are the fourth-biggest steel consuming indutry, according to the association.

“The first-half will be pretty poor, but by the third or fourth quarter demand will improve,” said Peter Fish an analyst at UK based metals consulting company MEPS International Ltd. “The time is approaching when so-called destocking, in which customers use up inventories, ends and new orders will be made”

China’s imports of iron ore also spiked dramatically in February & March,  as larger iron ore producers such as Vale & Rio Tinto have been selling their iron ore to Chinese customers at a discount. Based on comments from the China Iron & Steel Association, it’s possible that small Chinese steel mills are taking advantage of the opportunity to buy higher-grade imported ore at attractive prices. Previously, imported ore was only available to large mills.

A recent report in Tradewinds shows that Vale chartered 25 Capesize vessels last month for chinese delivery, which should point to flows of iron ore resuming, although a base price for 2009 has still not been agreed with Chinese steelmakers. At present, iron ore is being sold on the spot market at roughly 20-40% discount from 2008 highs of $200 per tonne, by Rio Tinto & BHP Billiton. Valke on the other hand has dropped production & delivery in step with falling demand & has maintained last years benchmark pricing.

Chinese negotiators from Bao Steel had tried to force prices down to 60% of last years benchmark, however it would seem that Vale’s stance regards shipment may have forced China’s hand, as demand for steel is growing. Vale (NYSE : VALE) finished trading on Friday at  $17.42 off of a YTD low of $11.90 on heavier than norma buying activity.

For me Vale is in a much more enviable position than its two main competitors, Rio Tinto & BHP, as they have expended a lot of energy in last years failed takeover bid. Rio Tinto in particular is saddled with huge amounts of debt & no doubt is coming under a lot of political pressure form its would be Chinese bail out “sugar daddy”. I firmly belive that Vale will be able to add at least 50% to its stock price this year & is one of the best value buys in the commodities sector right now.

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