The Wall Street Journal reports,"signs of weakening Chinese demand for commodities are filling in a picture of a slowing economy and sparking a selloff in the country's currency, its stock market and in prices of the coal, copper and iron ore that China buys".
"The selloff rattled markets across the region Wednesday. Japan's Nikkei Stock Average fell 2.6%—its biggest decline in more than a month—and the offshore yuan, which is freely traded outside mainland China, dropped to its lowest level in eight months".
"Iron-ore traders say buyers are staying on the sidelines and stockpiles are rising in China's ports as a drop in exports and tightening credit make steel mills reluctant to add inventory. Copper prices are down on fears that inventory would flood the market if companies dumped the metal to unwind risky trades.
The price for premium hard coking coal from Australia fell 2.4% on Wednesday and is down 13% this year".
China's stock market, one of the world's worst performers this year with a 5.6% decline, sank to its lowest level in nearly eight months on Wednesday. The benchmark Shanghai Composite Index closed down 0.2% at 1997.69, after touching 1974.38, its lowest level since July 30, 2013.
The yuan weakened further against the U.S. dollar on Wednesday, falling 0.1% in Shanghai and leaving it down 1.5% this year. The decline is a reversal from years of steady appreciation, including a 2.9% gain in 2013.
"Copper extended its slide to a fourth day, falling more than 3% in Shanghai and bringing its decline for the year to around 15%. The metal is piling up in warehouses in China as demand from manufacturers slows. In addition, much of the stored copper is used as collateral for loans. As prices fall, borrowers could come under pressure to post more collateral, forcing them to sell copper to raise money".
Investors are awaiting data on Chinese industrial production and fixed-asset investment set to be released Thursday. Economists expect industrial production to have climbed 9.5% in January and February compared with the same two months a year earlier.
The question mark is if Chinese lately dissapointing data is because of a usually seasonally murky economic indicators at the start of the year in China because of the long Lunar New Year holiday, which some years falls in January and others in February.
The big debate among analysts has been whether the Chinese government will step in if growth slows.
The latest wave of selling in markets was driven by fears that another Chinese company was running into financial trouble.
Shares of Baoding Tianwei Baobian Electric Co. , a power-equipment maker that has made bad bets on the solar industry in recent years, fell 5.1%, the daily downside limit, and the company's bonds were suspended from trading for a second day.
Iron-ore prices are down 6% this week, as investors worry about rising supply and weakening demand. "The substantial decline in exports and significant increases in both Chinese port stocks of iron ore and finished steel inventories have sparked fears that spot cargoes could face prolonged downward pressure," said Kash Kamal, a London-based analyst at broker Sucden Financial.
Tim Condon, an economist at ING, said the lack of transparency in China's financial policies often generates uncertainties and anxiety for investors.
"Sentiment has definitely turned sour toward China and it does raise the question why it's so easy to accentuate the negative in this country," he said".
