‘For Reference Only’: Getting A Bead On China’s GDP

Should we cut our largest trading partner some slack when it comes to China’s economic statistics? The Economist certainly thinks so. It says massaging or smoothing data as it believes Chinese statisticians do is OK, even if plain fabrication is not, but the trouble with that view is that a little bit of fiction and rounding may end up becoming pulp fiction over time. It could become a slippery slope: the more it’s done the more its authors may think the audience will swallow anything.

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Fortescue Digging Down: To Profit Or Loss

When you’re in a deep hole they say dig faster. In Fortescue’s case digging faster is just the least worst option as its competitors pile on the pressure. Not only are the four majors – BHP, Rio, Vale and Anglo adding about 90mt to their 2014 output of 875mt, Hancock Mining plans 55mtpa starting September. More is on the way from India as well if it scraps a 30% export tax in the next budget making 15 iron ore exporting countries now in a race to the bottom.

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Who Blinks First? Saudi Aramco Vs US Shale

As oil skids below $60 the chance of a rebound depends on who blinks first: Saudi Aramco or US and Canadian shale companies. There are many layers in the supply/demand mix, but overwhelmingly the key players are Saudi Aramco, the world’s largest oil organisation, and its big new competitor the 200 plus North American shale and tar sands developers – many of which face a grim future as their traded debt slumps.

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China’s Credit System: Snakes Eating Tails

Standard Chartered Bank says China is spending 19% of GDP on debt servicing. If so our fund managers and CEOs have some thinking to do. It means that not only will China’s growth be hobbled as interest and debt repayments swallow up cash-flow, but because China still preserves the fiction that nothing can go wrong under the Chinese economic model. Face is important and must be preserved, but there could come a time when this becomes too costly even for reserves rich China. As it is Standard Chartered estimates that 32% of new loans go to paying interest.

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Base Metals Basing

Almost all industrial metals have fallen since the iron ore exporters decided to commit hari-kari, but prospects for lead, zinc and bauxite are basing rather than slumping and for $A producers are in many cases firming. Even the currently well supplied copper market has fundamental support as conventional electrification spreads in the developing world and the urgencies of climate change and economic nationalism add either demand support or supply constraint.

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KGL’s Copper Bonanza

Half a dozen thick 5% copper intersections are interesting, 10-20% lead is intriguing, silver of 1240 gm/t verges on exciting, but 11%, 20% and then 30% copper is in a different league again. The market certainly thought so over the last week as half forgotten KGL Resources took off from 14c to 24c in just a week. A follow up with an 11% cu hit on Monday and strong silver with it sent KGL vertical again for a near three-fold gain.

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Riding The Wave Of US Renewables: Good News For A Very Few

If the prospects of renewables now look increasingly bleak in Australia, the reverse is true in the US. For the last four to five years major companies and utilities have been turning to renewables under a patchwork of regional regulatory support and incentives, but now under the authority of the Clean Air Act the EPA has issued a directive requiring an aggregate reduction of 30% by 2025.

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China’s Urban Vacancies

The China sceptics may have got it wrong. Many repeated the 2012 estimate by China’s Academy of Social Sciences that there were 64 million empty apartments in China. Now a survey from Chengdu’s South Western University of Economics and Finance reports that the more accurate figure is 48.9m unoccupied or one in five of China’s homes. The rate for low income housing projects is slightly higher at 23.3%.

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The Banks: Bubble Or Nothing – Leading Analysts Pull Back

Last year the highly regarded UBS bank analyst Jonathon Mott put out a research note called “Welcome to the Great Bank Bubble”. It was a bit premature as a year on the Big Four are still expanding profits and dividends, but the recent sell-off after Westpac’s and ANZ’s relatively solid half year results suggests that Mott and some of his more cautious colleagues like CLSA’s Brian Johnson are not alone in not being devoted bank bulls.

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Macquarie: Pollution Curbs Won’t Slow China’s Steel Output…Or Will They?

As our iron ore miners rapidly increase supply China’s steel producers face challenges. One is the threat of closures following last month’s announcement that the Bank Regulatory Commission will deny credit to steel companies breaching environmental laws or those with substantial over-capacity. Since many, if not most, plants breach environmental standards this could mean China’s steel production could be hobbled. In its April “Insights” newsletter Macquarie Investment Management looks at this potential intervention and concludes that it will not.

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Macquarie Rates Doray As Outperform

Gold has the wobbles and may send explorers and miners skidding if it retraces to US$1200. For those with a longer view on the world’s massive debt build up, the soft US and EU economies and China’s steady drip of corporate defaults, quality gold miners may still remain an option. But without compromise that means grade, cash-flow, management and mine life.

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Cannacord Predicts Big Gains For Sandalwood Grower TFS

Cannacord Genuity Australia has returned to one of the more complex stocks in the market with an eye catching $3.34 price target. Its latest note on TFS Corporation (TFC) came the day after a company release last week confirming a supply agreement for sandalwood oil and builds on a 44 page report in November. The new $3.34 target is 120% from the current $1.40-1.50 level and based on the discounted cash flow of over $9 billion in sales of sandalwood oil over the next 30 years.

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Brokers At Odds Over Iron Ore Price

There should be no argument. Goldman Sachs, the world’s largest investment bank, has done the numbers on China’s iron ore supply – both pending imports and internal production- and predicts a fall to $80 by the end of the year. Australian miners may add another 100-175 m tons to their current exports of 604m/t which was rising an accelerating rate as 2013 closed.

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Peninsula Energy: Spec Buy from Hartley

Hartley’s latest report on Peninsula Energy (PEN) begins with what seems like an unusually frank admission. It says PEN’s Wyoming uranium projects are not viable at current spot prices. This seems grim until shareholders see that the “Speculative Buy” is based on the fair assumption that the power utilities will not want to take the risk of remaining “uncovered” for too long in case the spot price turns up in the near term.

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