Just when the talk was that China may have peaked, causing a chill throughout the Australian economy, initial data and market sentiment coming out of the Chinese manufacturing industry is beginning to tell a different story.
As we reported earlier this month, the shipments of iron ore that China was holding off on for some time, hopefully to deflate prices, now can be clearly seen as flowing out of Australia, with exports up 33% compared to last year.
The giant Chinese steel industry needs the basic ingredients of iron ore and coking coal, so just like in a recipe, you have to assemble them before you can make your finished product. In this case, Chinese makers have already exported 43% more steel compared to last year, so they will have to replenish their supplies.
Coal imports have not been as strong, and that is reflected in the current spot prices, and further news stories about the troubles Australian coal producers are having point to that relative weakness. Australia accounts for 38% of all Chinese coal imports, but like iron ore, when the inventory gets low, the orders will come back.
Peabody Energy (NYSE: BTU), which just announced more layoffs at one of its Queensland coal mines, has projected that by 2017 global coal demand will rise from the current 7.7 billion tonnes to 8.9 billion tonnes, adding that 80% of the growth estimate will come from China and India.
Chinese factory output in general was up 10% in August compared to August 2012, retail was up 13.4% for the last 12-month period and the first eight months of 2013 saw a 20% increase in investment.
The Chinese government has set a 7.5% GDP growth target, and initiated action to stimulate railway investment and public housing construction. In addition, the central bank is easing lending to get business flowing and improve consumer confidence to spur on consumption.
Noticing trends in stock prices is one way to spot strong growing companies, and you as an investor can do this easily every day. The real trick is to find out what those companies need for their production or how those products are used by the next company.
Learn about leading indicators for an industry, and when the headline news is sour, yet you are seeing the start of increased orders, production or shipping, you know that in due time the earnings will go up. That’s the point when you can buy stocks cheaply, and make your rate of return higher.
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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.