Chinese Demand Really Slowing?
Mar 21, 2012
The market yesterday really wanted to talk about the Chinese government elected to hike their domestic fuel prices by 7%. This was their second fuel price hike in the past six weeks, and many are reporting fuel prices in China have now risen by 40% since 2008. The worry is with the Chinese economy somewhat stumbling, this will only apply further economic pressure to Chinese consumers, and in the long-run adversely affect overall commodity demand. I am not in the same camp however. I believe the Chinese government is much smarter than this, and feels the economy has strengthened enough to handle the recent price increases. I am sure they have held off on the price hikes until they were certain the economy could handle it. From where I sit, I am thinking the Chinese government has been waiting to announce the rate hikes at a time it could be best handled. What you have to always understand though is it doesn't matter what you or I think, it only matters what the market thinks, and right now the market seems to be digesting the news as negative for growth and negative for overall commodity demand. Therefore, a more "risk-off" environment has taken hold the past couple of days, prompting those who were aggressively long to throttle back some of their exposure.
Something else we need to consider is that global fertilizer demand might be picking back up. The major fertilizer stocks were all higher yesterday despite the stock market being considerably lower. One interesting note is that Canpotex, the world's largest North American potash exporter, revealed it had signed a contract to supply between 500,000 and 700,000 tons of fertilizer to China's largest integrated agricultural company "Sinofert" in the April-to-June quarter. This announcement comes after many analyst reported demand out of China and India had been slowing significantly...I guess not. I should also point out a recent report from Potash Corp, showed that North America's inventories actually shrank in February by more than 16,000 tons. Why I mention this is because most analyst were expecting supplies to move higher...not lower.
Also, thought it interesting to note the Heilongjiang government (in extreme North Eastern China), the largest corn producing area in China, recently reported close to 15 million acres of corn is expected to be planted this Spring. If their estimates are correct this would be about a 25% jump form last year's corn acreage numbers. There is talk that rice acreage could also expand by 25-30% as well. The thoughts are both of these crops are going to grow primarily at the expense of soybeans acres, further confirming beliefs that soybean acres in China are aggressively being reduced in an effort to increase corn, rice and wheat production.
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