Meanwhile in China....

cells

Generali wrote: »

Once we have answered that question, the next is which producers are selling at below their marginal cost of production as without state aid or protectionism they will go bust first?

I don't know China but what happened in Europe in the last recession was that pretty much all companies reduced output some rather a few companies going bust.

Blast furnaces that were designed to do 3mtpa were reduced to say 2.5mtpa

Sites with say 3 x 1mtpa blast finances closed one and ran the other two normally. At its worst stages theee was talk of mothballing some sites but that didn't quite happen

A few years later they ramped up production again once steel needs returned to previous volumes

Generali

cells wrote: »

I don't know China but what happened in Europe in the last recession was that pretty much all companies reduced output some rather a few companies going bust.

Blast furnaces that were designed to do 3mtpa were reduced to say 2.5mtpa

Sites with say 3 x 1mtpa blast finances closed one and ran the other two normally. At its worst stages theee was talk of mothballing some sites but that didn't quite happen

A few years later they ramped up production again once steel needs returned to previous volumes

This is where it gets interesting.

If the stock analysts are correct and China has vastly over-invested in steel production to meet demand that has mostly been in the form of short-term stimulus spending by the Government then companies will go bust.

In the short term you can cut back production as all you need to do is cover operational costs (wages, ore, fuel, taxes) but longer term you need to cover the cost of financing and cutting back production doesn't help with that.

Time will tell really.

Oh and back to the stock market, a quote from The Economist about the Chinese market yesterday:

With so many shares suspended or halted because down by daily limit, just 11% of stocks in China (300 of 2776) are actually tradable now.

ging84

this story has got real now, it's made the bbc homepage for a bit

Generali

Well the Beeb reported just in time for a small rebound in prices.

http://www.vox.com/2015/7/7/8910293/china-stock-market-crash

Dead cat bounce or the end of capitulation. YOU decide!!!

Actually, with trading in more than half the stocks that make up the main two indices suspended, it's fair to say that the market isn't really open for business right now.

cells

Generali wrote: »

This is where it gets interesting.

If the stock analysts are correct and China has vastly over-invested in steel production to meet demand that has mostly been in the form of short-term stimulus spending by the Government then companies will go bust.

In the short term you can cut back production as all you need to do is cover operational costs (wages, ore, fuel, taxes) but longer term you need to cover the cost of financing and cutting back production doesn't help with that.

Time will tell really.

Oh and back to the stock market, a quote from The Economist about the Chinese market yesterday:

Surely a lot of the steel plants have been paid off or written down? The one I worked at was built by the government in the 70s and I doubt any sane bank would allow them to 'remortgage'.

also bear in mind that as china is a developing country something built 10 years ago with materials and wages at 10 year ago prices is surely cheap today (thats to say wages and prices were about 1/3rd the price ten years ago so they built their steel plant for 1/3rd of what it would cost today. And they also ran it at capacity for a decade oaying even more off)

Generally I think chinas 'over' investment in fixed assets is nit true. The country is so vast and developing so quickly that people are mistaking catching up with building too much

Graham_Devon

Generali wrote: »

Well the Beeb reported just in time for a small rebound in prices.

http://www.vox.com/2015/7/7/8910293/china-stock-market-crash

Dead cat bounce or the end of capitulation. YOU decide!!!

Actually, with trading in more than half the stocks that make up the main two indices suspended, it's fair to say that the market isn't really open for business right now.

The BBC today stated that they have banned some larger share holders from selling.

However, alongside this, the chinese government has made it easier to borrow money to invest in the stockmarket, in the hope that this will reverse the declines.

I couldn't quite believe it. The story on newsnight last night about all this was that the stockmarket was so overheated precisely because every man and his dog was encouraged to borrow to invest. Poorer people were actively targetted with promotional material to suggest if they borrowed to invest, they too could follow the wealthy. Now they are 30% down, some locked in, and owe the lenders their payments.

I just can't quite believe the fix to all this is to make it even easier for people to borrow money to invest int he chinese stock market. I just feel for the poor saps who will be brainwashed enough to carry it out.

DiggerUK

It isn't clear if China is the new gorilla in the room or not.

The reason I speak so, is because we now have a situation were many on margin in China can't sell to acquire more chips to continue playing in the Chinese casino.
If they now start dumping overseas investments for liquidity to stay solvent, how will that sell off affect economies in other countries.

Liquidity in China seems to be the issue for now, or perhaps it has gone beyond that. I feel that what the Chinese Central Bank does next should be the issue that gets you all talking over a pint of the black stuff..._

Thrugelmir

Graham_Devon wrote: »

The BBC today stated that they have banned some larger share holders from selling.

However, alongside this, the chinese government has made it easier to borrow money to invest in the stockmarket, in the hope that this will reverse the declines.

I couldn't quite believe it. The story on newsnight last night about all this was that the stockmarket was so overheated precisely because every man and his dog was encouraged to borrow to invest. Poorer people were actively targetted with promotional material to suggest if they borrowed to invest, they too could follow the wealthy. Now they are 30% down, some locked in, and owe the lenders their payments.

I just can't quite believe the fix to all this is to make it even easier for people to borrow money to invest int he chinese stock market. I just feel for the poor saps who will be brainwashed enough to carry it out.

90 million private investors apparently. Some with entire savings in the market. :eek:

Graham_Devon

Thrugelmir wrote: »

90 million private investors apparently. Some with entire savings in the market. :eek:

There was one of them on newsnight last night. Living in what I can only describe as some sort of 1 bed house type thing and had put her entire savings into the stock market.

She's lost around 9k of the 30k she put in in paper terms, but the crucial thing is, she will now be being ushered to take loans basically to chase losses.....by the government itself!

chewmylegoff

Thrugelmir wrote: »

90 million private investors apparently. Some with entire savings in the market. :eek:

unfortunately this isn't particularly a feature of the Chinese market. Time after time at work I come across UK people who have done crazy things - like pull all of their net worth together upon retirement and use it all to buy a single AIM share because they saw someone claiming to have made millions doing this on a bulletin board. The most lunatic was a guy drawing cash advances from a credit card at 29.9% apr and "investing" the money by buying a CFD in an AIM oil exploration company as he believed the returns would greatly exceed the interest paid. I think you can guess what happened next.