In an otherwise worthless piece, John Mauldin picks up on the important China soybean debacle story.
Message 20173267
Xie's comment in second story :
"China has to become either much more energy-efficient or find a substitute for oil."
True, I suppose, but give me a break, although China is the marginal growth consumer, it's the US that is the monster consumer of oil, and US policy is totally geared around encouraging this.:
Who's Picking up the Soybean Tab?
The following story I have only seen in Dennis Gartman's daily letter. I
print these paragraphs and offer some comment afterward.
"Regarding grain, the focus is on China where rumors are rampant concerning
the possibility that 20-30 full cargoes of soyabeans shipped there are in
jeopardy of being defaulted upon as the buyers have not secured letters of
credit. As our friends, Bob Lekberg and Tom Pfendler of Goldenberg,
Hehmeyer wrote late yesterday regarding this impasse our commercial sources
suggest the shippers themselves do not even know what the outcome will be.
They do not know if they are long or short. Frozen by the situation, trade
presently with China is not feasible. Plus, many of the major shippers are
on the black list already and could not sell to China even if they wanted
to.
"This is the absolute worst news that could come out of China; trade in
grain there is at a standstill, and we are left to wonder what it shall
mean for trade in any and all other 'commodities....' or manufactured
goods... or even services for that matter. The inability to secure letters
of credit may be 'one-off' to the grain market; but what if it is not? What
if this is a problem of much greater potential? This is indeed worrisome;
this is very, very worrisome, and its broader implications may be far more
serious than we might willingly wish to imagine."
In a follow-up discussion with Dennis, there are mostly questions left
unanswered. It is doubtful this is a government act, as it would be a
foolish one. Are several small businesses trying to manipulate the markets
or squeeze suppliers? Possible, but again, it would be a one-time act, for
no shipment would ever leave port bound for China again without fixed
letters of credits already in place. Since they need the soybeans, what is
the motive? Is there a breakdown in the banking/credit system? Is this a
one-off problem, or is it the first of a cascade of private financing
problems.
We can only hope this is some bureaucratic mess and will get shortly and
quietly fixed. A serious problem with Chinese credit would be a disaster
for the world economy.
And speaking of China and problems, there is an absolutely fascinating
discussion among Morgan Stanley economists about the current rise in oil
prices at morganstanley.com.
For those reading this later in the week, it is in the Morgan Stanley
archives for May 28. Buried in the discussion were these facts about China
and oil from analyst Andy Xie.
"Surging oil demand for oil from China is the primary cause for the high
oil price. Chinese demand is currently increasing three times as fast as
the trend in 1990s. Global demand was rising by about one million barrels
per day every year in the 1990s. Chinese demand is now rising at that
speed by itself...
"China will have to change its energy policy. If left to its own devices,
an extrapolation of recent trends suggests that China's oil consumption
could double over the next decade, from 7 million barrels per day in 2004
to 14 million barrels per day by 2014. The problem with this forecast is
that China can't afford the resulting cost of higher oil. Considering the
limited spare capacity in Saudi Arabia, the China factor, alone, could
drive up the oil price above $80 over the next ten years. At that price,
China would have to spend $300 billion to import crude and related products
per annum by then. It would be a huge drag on the Chinese economy, to say
nothing of its impact on the rest of the oil-consuming world...
"The choices are relatively simple: China has to become either much more
energy-efficient or find a substitute for oil. But it takes 10 years to
build a nuclear power industry. China has to act soon if it wants to adopt
the nuclear option. Another alternative is to limit the growth of the
automobile industry. The current growth trend could result in a tripling
of China's fleet size to 100 million by 2014. Unless China alters this
growth path, it will be too late to slow oil demand." |
