February 2007—China has been transforming their steel production from one of the largest importers to a giant exporter capable of outstripping demand for steel worldwide. While this is bad news for steel producers, it will be an added bonus for trailer manufacturers and others purchasing these products in the transportation industry.

While overwhelmingly cheap Chinese steel production is coming online, the auto industry is showing signs of slowing down. The expected slowdown in the economy will also put the brakes on steel demand.

With more than a billion people and economic growth of 10%, China has been driving the world commodity market over the past few years. The demand for copper and other metals has had a beneficial affect on Canada.

The coming steel onslaught promises to make the previous slowdown six years ago, look like a cakewalk. In addition to their artificially devalued Yuan, China encourages growth by handing fat subsidies to its steel makers. China is building new foundries. Their capacity has grown by 22% annually over the past five years. Estimates say it will grow another 22%. Their manufacturing industry now has the capacity to channel much of China’s excess steel into manufactured products, thus finding its way around Canadian anti-dumping duties and causing serious damage to the Canadian economy.

China went to a managed floating exchange rate for money, however Washington is not satisfied, and wishes to it move at least another 20%. In the 1930s, the US imposed policies that caused a dramatic rise to the price of silver. China’s currency at that time was based on the silver standard. With the dramatic increase in their Yuan, China sought relief from the US policy mandated by Congress. Forced to abandon the silver standard in 1934 it doomed Chiang Kai-shek’s Nationalist government, giving rise to the communist

government of today. An appreciation of the Yuan by 20% would generate a 12.5% deflationary impulse. This would collapse China’s banking system and cause extreme hardship and additional unrest in the rural areas. The communist regime is barely managing to control their populace, which is demanding more western style reforms and higher environmental standards of living.

Meanwhile, China will issue more regulations this year regarding the expansion of large foreign chain stores, such as Walmart into their country.

In a recent report on global agricultural trends to 2015, OECD said as countries like China, India and Brazil get richer and more urbanized their first demand is better and more variety in food sources. This will fuel strong demand for imports in meat, livestock feed, fruit, vegetables and processed foods. This will have a balancing affect on the price of wheat, coarse grains, oilseeds, and cheese. While consumption rises, China and India with policies of self-sufficiency will continue to put downward pressure on world prices for most food commodities.

OECD expects global meat consumption to expand 2% annually with the developing countries in Asia taking 60% of that growth. China’s meat consumption will rise 23% over the next 9 years.

One of the fastest-growing meats in global trade is pork. While Canada has a healthy pork industry, this is expected to increase pressure on rural areas as more companies start up huge pork operations. BSE will have a positive impact on employment as Canada increases its shipments of processed meat products.