http://www.forexlive.com/blog/2014/03/14/haixin-steel-shanxi-mill-has-defaulted-on-bank-loans-14-march-2014/
Chinese bank stocks hit by debt default jitters
1 hour ago | March 14th, 2014 03:10:10 GMT | 0 comments
Fast FT: Chinese bank stocks hit by debt default jitters
- Another mainland Chinese company defaulted on debt payments, raising fears that indebted businesses are running out of refinancing options
- Haixin Steel, a Shanxi steel mill, has defaulted on bank loans
http://www.macrobusiness.com.au/2014/03/daily-iron-ore-price-update-the-panic-revealed/
( we have read much on copper , but also consider iron ore... )
Daily iron ore price update (the panic revealed)
Posted by Houses and Holes in Commodities, Iron ore priceat 12:09am on March 14, 2014 | 6 comments
Here are the iron ore charts for March 13, 2014:
The impressive rebound continues but is it a restock? There is some evidence in favour. From Reuters:
China’s steel output has recovered, rising 5.9 percent to 2.08 million tonnes a day in the last eight days of February from the preceding 10-day period, according to the China Iron and Steel Association.This is also up from the 2.07 million tonnes daily average for 2013, showing that the output is still growing.Steel inventories remain near record highs, although they have declined recently, dropping 5.9 percent to 16.3 million tonnes at major mills in the last week of February.
Following two months of weakness, a 0.01 per day run rate improvement on last year makes “growing” an overly strong expression. Flat would be more like it. But as we know, mill ore inventories are destocked so demand will filter through to new seaborne trade so long as the port hoard doesn’t run down.
The principle source of demand growth, such as it is, is clearly property. From Phat Dragon’s decomposition of last night’s fixed-asset investment release:
We can expect this to roll on for the first half and then weaken as the construction lag between last year’s good property sales catches up to today’s declines.
On the port pile, it now seems pretty clear what happened to trigger the panic. From the FT:
Beijing’s challenge is laid bare by the failure of Haixin Steel, a privately owned mill in the heart of China’s coal country, to repay loans that came due last week. The default, disclosed to the Financial Times by steel traders, could send shockwaves through the local banking and shadow banking sectors.Partly in response to rumours surrounding Haixin’s default, Chinese onshore iron ore spot prices fell more than 10 per cent this week to levels last seen in 2009, helping to trigger steep drops in global markets for the metal, which take their cue from the gargantuan Chinese economy.Haixin is the largest privately owned steel mill in Shanxi and accounts for 60 per cent of the tax revenues in Wenxi County, home to 400,000 people in China’s coal heartland.Haixin was also the lead investor, together with other local private companies, in Jinshang Investment Guarantee, which backed other companies’ debts for a fee. On Thursday, a website describing the credit guarantee company’s operations appeared to have been shut down.Steel traders fear Haixin is deeply entangled in triangular debts with coal suppliers and other local companies and that its inability to pay back loans to state banks could trigger a wave of defaults throughout the region.On Thursday, employees and the local government said Haixin is still operating, albeit at very low production levels.
And more from another FT investigation:
…according to people familiar with the government’s thinking, Mr Li’s administration is intent on allowing some high-profile defaults to serve as a warning to China’s profligate lenders in both the formal and shadow banking sectors.…Haixin’s problems have been well-flagged. A December report by the banking regulator’s local branch warned banks against lending to steel mills that had borrowed from multiple banks. It specifically named Haixin in an unusual public shaming. The Shanxi branch of Agricultural Bank of China ordered the local branch to stop lending to Haixin two years ago. BHP Billiton cut off iron ore supply about 18 months ago.Haixin has also been repeatedly censured over the years for its environmental practices and that puts it directly in the line of fire in China’s newly-declared “war on pollution”.…In 2003, a heavily indebted former classmate and life-long friend killed Haixin’s founder, Li Haicang, with a single shot from a sawn-off shotgun, after Li refused to pay the requested amount for land occupied by the classmate’s defunct paper mill. His son Li Zhaohui, then 22, cut short his punk hairstyle and began running the business.
Worth saving? Chinese authorities aren’t coming to the party with rescues or stimulus (although the yuan has weakened and interbank rates have plunged), which, you would think, would ease pressure on ponzi mills, unless it’s because banks don’t need money as they pull loans!
My assessment at this stage is that it’s too early to call the end to the first battle in China’s war on steel. If it is, and Haixin manages through, then there’ll be decent iron ore demand (though I still think flat steel production year on year is likely) for a little while as mills rebuild stocks a bit. $120 is a target price that springs to mind.
But it still looks quite possible that we’re only drawing breath before hostilities resume.
More broadly, do not take the wrong lesson from this episode, which is what the Australian equity market is doing. China’s war on steel has begun and the next battle will be right around the corner. There’s no upside to being caught in the cross-fire.
and.....
Chinese Authorities Halt Virtual Credit Card Payments; Tencent, Yahoo Crashing
The PBOC issued a statement today, according to 21st Century Business Herald, that halts virtual credit card products and "face-to-face" payment services such as QR code payment:
- *PBOC HALTS QR CODE PAYMENT: 21ST HERALD
- *PBOC HALTS VIRTUAL CREDIT CARDS BY ALIPAY, TENCENT: 21ST HERALD
Tencent is down over 5%, China CITIC is crushed, and Yahoo was dumped in morning trading in Japan (on the back of Alibaba's Alipay service being affected).
March 13, the central bank issued an urgent document halt Alipay, Tencent's virtual credit card products, but stopped there barcode (QR Code) payment and other payment services face to face.
21st Century Network 21 has learned that on March 13, the central bank issued an urgent document halt Alipay, Tencent's virtual credit card products, but stopped there barcode (QR Code) payment and other payment services face to face.
Tencent is tumbling (and it appears perhaps a few people knew earlier in the week)...
China CITIC is down hard...
and Yahoo (trading in Japan) was flushed on massive volume at the open...
Here's Why The Market Is Shrugging At TBE's "Promise" Not To Default In July
The "good" news this evening is that Baoding Tianwei Baobian Electric Co (TBE), the company which as recently as two days ago was rumored to be the second "imminent" Chinese corporate bond default which sent copper to multi year lows, hasissued a statement that it will not default on its upcoming interest payment (due July 11th - so how the delisted company is convinced it will have enough cash four months from now is a mustery). The "bad" news is that markets don't care. There is a slight whiff of positivity in Copper futures but aside from that, weakness continues in China's corporate bond and stock market. Simply put, the market gets it - this is no longer about the next idiosyncratic bond (or trust) to default; this is about Xi's renewed confidence in efforts to 'clean up' the mounting local government and corporate debts and shrink the shadow-banking bubble. This is systemic, and the markets know it.
Hooray...
- *BAODING TIANWEI SAYS CO. TO PAY BOND INTEREST ON TIME
Copper was excited momentarily...
Co. will pay bond interest for due July 2014 on time, according to a statement to the Shanghai stock exchange.
So to be clear, TBE is promising that in 4 months it will pay interest on a bond that it currently has zero liquiidty to pay, is losing money, and is in an industry that the government has specifically targeted for 'normalization'...
BofA explains why is it not a big piece of news in China?
To the Mainland China media, the delisting of TBE bonds is not a big piece of news, in our view, because TBE was already in a law suit on its other debt, and the “new energy” sector has been in deep trouble anyway(as we have seen with Wuxi Suntech and Chaori). TBE is in the business of making power transmission equipment, but in recent years has heavily invested in the ill-fated new energy sector which has resulted in two straight years of losses with the losses in 2013 surging to RMB5.2bn. TBE’s Shanghai Stock Exchange listed bond was issued in 2011, with principal at RMB1.6bn, a 5.75% yield and 7-year tenor. TBE’s stock price has already fallen by 15% this year. TBE’s controlling shareholder is Tianwei Group, which is a central-government owned company.We do see a significant rise in bond and trust loan defaults We believe the chance of corporate bond and trust loan defaults will rise significantly in 2014 as a more confident President Xi Jinping and Premier Li Keqiang will aim to seriously clean up mounting local government and corporate debts.
As Li himself noted,
Though Mr Li said that he could not possibly "want to see" defaults in financial products, he added that "sometimes certain individual cases of such defaults are hardly avoidable".
As a gentle reminder (from our very detailed coverage of the China bubble about to burst), the bubble is gigantic (as Marc Faber would say) and there are many more debt maturities coming up...
From November 2012, The Chinese Credit Bubble - Full Frontal:
Everyone should also know that like a metastatic cancer, the amount of non-performing, bad loans within the Chinese financial system is growing at an exponential pace.
Finally, what everyone learned over the past month, is that as the two massive, and unresolvable forces, come to a head, the first cracks in the facade are starting to appear as first one then another shadow-banking Trust product failed and had to be bailed out in the last minute.
However, as we showed again last week, the default party in China is only just beginning as Trust failures in the coming months are set to accelerate at a breakneck pace.
So as Moody's noted:
Analysts see more such defaults in the coming months in sectors with overcapacity, such as steel and mining, as crackdowns on careless loans continue. "The lack of intervention is consistent with the central Chinese government's adoption of more market-oriented policies, which include increased tolerance for corporate bond defaults, as it reforms the country's financial markets," Moody's said in a commentary after the default.
In conclusion, one default here or there now is no longer relevant as the first crack in the damn has been made. Risk will be re-priced... confidence has been broken that money is free and 10% yields are riskless... finally, as we previously noted in great detail, here are the next steps...
The question, however, in addition to "why", is whether the Fed also agrees with BofA's stunningly frank, and quite disturbing conclusion, perhaps finally realizing that aside from the US, the biggest house of cards that would topple once the "flow"-free emperor is exposed in his nudity, is that of the world's largest "growth" (and credit) dynamo of the past two decades - China. Because, as noted above, if Lehman's collapse was bad, a deflationary collapse brought on by Chinese hard landing coupled with a full unwind of the global carry trade, would be disastrous and send the world into a depression the likes of which have never before been seen.
Finally, for those who want the blow by blow, here is BofA's tentative take of what the preliminary steps of the next global great depression will look like:
If we do experience a sizable default, the knee-jerk market reaction will be cash hoarding since it will strike as a big surprise. Thus, we expect the repo rate to rise first, while the long term government bond would get bid due to risk aversion flows.However, what follows will be quite uncertain, aside from PBoC injecting liquidity and easing monetary policy to help short term rate come down. It has been proven again and again the Chinese government will get involved and be proactive. The bond market reaction will be different depending on the government solution.
Alas, at that point, not even the world's largest bazooka will be enough.
At this point one should conclude that reality - through massive, unprecedented liquidity injections - has been deferred long enough. It is time to let the markets finally return to some semblance ofuncentrally-planned normalcy: there is a reason why nature abhors a vacuum. Even if it means the eruption of the very painful grand reset, washing away decades of capital misallocation, lies and ill-gotten wealth, so very overdue.
http://www.businessinsider.com/asian-markets-get-slammed-march-14-2014-3
Asian Markets Are Getting Slammed
Asian markets are in the red on Friday.
This follows on the back of a sell-off in the U.S. and disappointing data from China confirmed fears of an economic slowdown. This prompted many economists to cut their China GDP forecasts.
Mounting tensions between Ukraine and Russia also weighed on the markets.
- Japan's Nikkei is off 376 points, down 2.5%.
- Hong Kong's Hang Seng is down 0.8%
- China's Shanghai Composite is down 0.5%
- Korea's Kospi is down 0.4%
- Australia's S&P/ASX 200 is down 1.2%
"Investors are unwinding their long positions in the Nikkei and short positions in the yen," Kyoya Okazawa at BNP Paribas told Reuters.
This five-day chart shows Friday's stunning sell-off:
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