CommentaryMarket Analysis

The Chinese government frequently mandates steel production cuts, especially for environmental reasons. But the cuts have also aimed to cut production volume in support of maintaining higher steel prices and, therefore, a healthier domestic industry.

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A recent goal of cutting 150 million metric tons of steel production capacity by 2020 was achieved by the end of 2018, according to the Chinese government. (By the way, no such purely production-focused reduction goal exists for 2019).

According to a recent Reuters article, on the other hand, in June 2018, China’s State Council banned new capacity development for steel, among so2me other primary commodity products, in some key geographic areas, such as Beijing-Tianjin-Hebei and the Yantze River Delta Regions.

The Chinese government mandated that blast furnace steel operations in Tangshan and Handan, China’s largest steelmaking cities, continue production cuts, but at a reduced rate of 20% of total capacity for April-June (compared to the 30% capacity reduction ordered for the November-March period).

These cuts target improvement in air quality by reducing the concentration of PM2.5 particulate matter by a minimum of 5% this year, when compared to 2018. Some production facilities must even leave the region as the government seeks to improve the quality of life in pollution-affected areas, such as Beijing, which is surrounded by Hebei province (the location of multiple steelmaking cities, including Tangshan and Handan).

When prices rise, however, these mandates become more difficult to enforce.

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The Raw Steels Monthly Metals Index (MMI) fell by one point this month to 81, a 1.2% decline from the previous month’s MMI value.

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Price weakness in the index came from the U.S. HRC 3-month futures contract, with a 6.3% decline in price this month, while Chinese Dalian coking coal prices declined by 7.2%. The declining prices pulled the index down, in spite of the 16.2% increase in Korean scrap steel prices.

U.S.steel prices generally trended gently upward after stabilizing earlier in the year. CRC prices increased by around 3% on a month-on-month basis, while HDG increased by nearly 3%. HRC prices edged up by just over 1% while plate prices held steady month on month.

Source: MetalMiner data from MetalMiner IndX(™)

Overall, prices stayed firm, in line with seasonal supply and demand factors at work in construction, in particular. Generally stronger-than-expected industrial performance in both the U.S. and China provided price strength.

Similarly, and in line with more positive economic data than generally anticipated, Chinese steel prices increased so far this year, leading the U.S. price increase (as generally expected by technical analysis of steel prices since Chinese prices tend to move first).

Source: MetalMiner data from MetalMiner IndX(™)

Based on a basic visual comparison of Chinese steel prices with the China Manufacturing Purchasing Managers Index (PMI) trendline, as the PMI crosses the threshold over 50, steel prices tend to increase while they tended to fall during months of contractionary sub-50 readings. As we can see the PMI trending upward, we can expect steel prices to rise.

Source: Analysis of data from MetalMiner IndX(™), Yahoo.com and Investing.com

On the other hand, the comparison of trendlines between steel prices and China’s FXI, a large-cap ETF index, shows a relationship that appears weaker, with values moving in opposite directions at times (although still typically following a similar movement).

Given that China’s PMI reading increased recently, this indicates the potential for steel prices to show strength.

A Comparison of U.S. and Chinese Steel Prices

The spread between U.S. HRC and China HRC prices flattened out for the last couple readings after falling for a few months now, with a price differential in early April of $181/st.

Source: MetalMiner data from MetalMiner IndX(™)

This month, U.S. CRC prices outpaced China CRC prices. The spread once again trended slightly upward between the two after trending more or less downward since July 2018, with the current price differential of around $255/st.

Source: MetalMiner data from MetalMiner IndX(™)

Iron ore prices increased again this month, after some moderation in price increases from earlier this year. Weather issues stemming from Tropical Cyclone Veronica in Australia last month kept prices higher, in addition to a general improvement in the industrial outlook in China, which could support higher iron ore prices, and therefore higher steel prices. Coking coal prices, on the other hand, have generally fallen so far in 2019, which may exert downward pressure on steel prices.

What This Means for Industrial Buyers

Even with the lower index value this month, some forms of steel still showed upward momentum, indicating prices could be on the rise once again; that is, at least for the short term, supported by stronger-than-expected economic performance in the U.S. and China.

Like last month, plate prices continue to sit at high levels. Plate prices sit near $1,000/st, rising again after briefly falling back to $993/st in late March.

With prices still somewhat higher and other factors indicating some potential to increase further, buying organizations need to watch the market carefully for the right time to buy.

For more specific pricing guidance, try our Monthly Metal Miner Outlook Report on us – free for the first two months.

Actual Raw Steel Prices and Trends

U.S. shredded scrap prices stayed flat during March while the U.S. HRC futures contract 3-month price fell 6.3%.

Chinese Dalian coking coal prices were down 7.2%, falling the most of all the metals tracked in the Raw Steels MMI basket.

The price of Korean scrap steel increased the most, jumping 16.25%. Other price movements in the basket were much more modest, oscillating around the plus or minus 1% mark.

The Stainless Steel Monthly Metals Index (MMI) held steady this month at 71.

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LME nickel prices mostly ended up moving sideways as March progressed after hitting a six-month high early in the month, with the price peaking at $13,750/mt during trading.

Source: MetalMiner analysis of FastMarkets

SHFE nickel prices climbed back up to higher levels as well during the first quarter of 2019, currently at a higher year-on-year price as of April.

Source: MetalMiner analysis of FastMarkets

SHFE nickel prices showed strength on the back of the strong performance of the Caixin China General Manufacturing PMI, which hit 50.8 this March (its highest level since July 2018). The March PMI surpassed expectations and was up from 49.9 the previous month. The increase seems to come from Chinese state stimulus measures now impacting the economy, according to press reports. Additionally, other sources cite recovered export demand as the impetus behind the upbeat PMI reading.

The availability of cheaper pig nickel iron — an innovation created in China, which uses laterite nickel ores instead of pure nickel — helps mitigate nickel price increases by serving as an alternative to standard nickel as an input in stainless steel production.

In order to produce pig nickel iron, raw material, in the form of nickel laterite ore, generally must be sourced from outside of China, with Indonesia and the Philippines accounting for most nickel laterite ore production globally.

The mining of nickel laterite ore reserves out of Indonesia increased quite a bit as a result, with several notable Chinese joint ventures in operation or planning operations within Indonesia.

Recently, China’s Tsingshan Group, for example, partnered with GEM Co Ltd for the buildout of additional nickel-related production facilities in Sulawesi, a nickel mining hub in Indonesia. The recent project, which just broke ground in January, aims to develop nickel sulphate for export, slated for use in lithium-ion batteries for electric vehicles (EVs).

An earlier 2017 joint venture between Tsingshan and ERAMET formed around the nickel deposit at Weda Bay — said to house 9.3 million tons of nickel — focuses on nickel ferroalloy production.

Domestic Stainless Steel Market

This month, the 304/304L-Coil and 316/316L-Coil NAS surcharges remained the same as last month. Surcharges sit at higher levels than in the recent past, but are still down somewhat from the recent high point in July 2018.

What This Means for Industrial Buyers

Stainless steel prices stayed flat this month overall, with some declining prices reported among Chinese and Korean basket prices.

The Allegheny Ludlum 316 and 304 stainless surcharges did not move this month, while nickel prices in the basket showed mixed movement. LME nickel prices moved up slightly.

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Therefore, with prices essentially flat but somewhat high, industrial buyers may want to watch the market carefully in the coming weeks and adjust course as needed in case weaker Chinese prices offset typical seasonal price increases as we move into peak construction season.

Actual Stainless Steel Prices and Trends

This month, only a few of the prices in the stainless basket increased.

In particular, China FeCr (or Ferro Chrome) lumps increased in price by 6.2%, bucking the trend among the other Chinese prices in the basket, which otherwise declined.

Of the Chinese prices that decreased, 304 stainless coil dropped the most (by 3.5%), while the other price decreases were smaller, ranging from 0.3% to 1.2%. The Korean prices for 430 stainless steel coil and 304 stainless coil decreased as well (by less than 1%).

LME nickel and Indian primary nickel both increased in price by 0.8%.

The Allegheny Ludlum 316 and 304 stainless surcharges held flat this month.

A few years ago it was not uncommon to hear pundits calling the end of the dollar’s supremacy, the decline of the greenback’s position as the world’s reserve currency.

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Those pundits predicted the dollar would eventually be overtaken by a rising China — or, at the very least, by a multi-currency world of euros, yen and the rapidly rising renminbi.

Then came the broad market rout of 2015 and all that went into reverse.

You won’t have heard those calls for the dollar’s demise of late: why? Because despite the current administration’s weaponization of the currency – the imposition of geopolitically inspired controls on dollar transactions, such as sanctions on Russian oligarchs, Iran, North Korea, and so on — the dollar is being used more now than it was five years ago.

True, those most impacted, like Russia, have significantly reduced their reserve holdings of dollars and diversified into gold and other currencies. According to the Financial Times, Russia has reduced its holdings of dollars from 46% of the total foreign currency reserves to 22% and increased its holdings in gold.

Russia one can understand, but the surprise has been China.

Today, the renminbi is less international by three key measures than just before that 2015 meltdown, the Financial Times explains. At its peak more than four years ago, the Chinese currency had become the fourth-most widely used currency for cross-border payments, according to SWIFT, the global financial messaging service.

But for most of the past few years, it has been in fifth place, having fallen in larger monthly volumes, year on year, than other global currencies. Similarly, the Financial Times says, yuan-denominated trade accounted for 30% of total Chinese trade in 2014, but has since slipped to about half that level.

Moreover, offshore bond issuance denominated in renminbi is about half the roughly $900 billion level of 2014, according to JPMorgan.

The only parties to kick the trend are central banks, which, as of the third quarter, carried 1.8% of the world’s reserves in renminbi, according to IMF data. But that was up only slightly from 1.1% when the Chinese currency was first included in the data at the end of 2016 and still pales to banks’ appetite for gold, holdings of which are now at their highest level since 1971.

Fortunes for the renminbi could be about to change, though.

Recently, Chinese government bonds have become accepted into a widely used global index, a move that could ultimately spur some $2 trillion of fund inflows into China’s onshore debt market, according to the Financial Times. That signifies the country’s debt market, the world’s third-largest, could in itself spur demand for renminbi.

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Even so, China’s aspiration for the renminbi to rank alongside the dollar still looks to be a long way off.

No need to rush to the forex dealer with your greenbacks just yet.

We are used to dire stories emanating from the automotive industry in Europe of late.

The swing from diesel engines has hit European producers hard, as the region had been heavily biased toward the economical but historically carbon particulate polluting oil burners.

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Some manufacturers, like Jaguar Land Rover, were more heavily dependent on the sale of diesel engines than others, and had relatively little to offer as an alternative. Big SUVs powered by petrol or electric engines have not been big sellers in Europe, so manufacturers’ lineups have been limited.

Nevertheless, sales are down across the board.

Fiat Chrysler sales fell by 14.9%, Ford by 6.6% and Volkswagen Group by 6.4% last year, Reuters reported. Renault’s alliance partner Nissan also recorded a 24.7% decline, with new car registrations across the board recording a 4.6% fall in January.

It could be argued a mature market like Europe is going to face good years and bad — most consumers already own a car and postponing a decision to replace it is a relatively easy one to make.

But consumers in faster-growing emerging markets exist in a different dynamic; as such, we are used to seeing strong year-on-year growth in places like China.

But last year auto sales there suffered their first decline in nearly three decades, falling 4.1% from 2017 year to 23.7 million, according to the AFP.

This year has gotten worse, as sales of SUVs, minivans and sedans plunged 17.5% from a year earlier to 3.2 million in the first two months of 2019, according to the China Association of Auto Manufacturers. Total vehicle sales, including trucks and buses, fell 15% to 3.8 million units.

Painful as this has been for all suppliers, Chinese brands have fared the worst, falling 23% to 1.3 million units in January and February, debunking the theory this is a backlash against Western brands due to the trade war.

Even SUVs, usually a bright spot for the industry, contracted 18.6% to 141,000, AFP reports. Only sales of pure-electric and hybrid vehicles, heavily promoted by Beijing with subsidies, rose this year (almost doubling to 148,000 units over a year ago).

It seems wherever subsidy goes, consumption follows.

The standout exception to Europe’s woes is Norway, where one-third of all new car sales were electric last year, Reuters reports. Norway exempts battery-driven cars from most taxes and offers benefits such as free parking and charging points as it tries to drive a shift from diesel and petrol engines to an all-electric market by 2025.

The independent Norwegian Road Federation (NRF) was reported to have said that electric cars rose to 31.2% of all sales last year — from 20.8% in 2017 and just 5.5% in 2013 — while sales of petrol and diesel cars, not surprisingly, plunged.

Even the U.S. is posting poor new car sales.

General Motors, the U.S.’s biggest automaker, sold 665,840 vehicles in the first three months of the year, down 7% from the same period in 2018 period. Fiat Chrysler was down 3% for the first quarter to 498,425 and Toyota down 5% to 543,716 units.

However, the U.S. has reasons to be more upbeat than elsewhere. Manufacturers point to consumer sentiment recovering in March and the other key drivers of auto sales like employment, wage growth and household balance sheets looking healthy. GM Chief Economist Elaine Buckberg noted the Fed’s pause on interest rate hikes, which eases a headwind facing auto sales.

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The combination of slowing global auto sales and the swift rise of electric — in markets outside the U.S., anyway — is posing challenges for established automakers as they strive to maintain earnings in a rapidly changing landscape.

Readers of The Telegraph are somewhat inured to dire warnings from the paper’s International Business Editor Ambrose Evans-Pritchard. However, his articles are well-researched and in the case of a piece this week, well balanced with arguments for and against his central theme that the bond market, supported by wider data, is showing sufficient warning signs regarding a recession that we should take the prospect seriously.

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The piece isn’t alone in calling out the inversion of the U.S. bond market as a warning sign.

Simply put, the yield on 10-year U.S. Treasuries slipping below shorter-dated maturities tends to be a reliable indicator that a contraction is coming.

As this graph from The Telegraph, illustrates the yield curve has proved a remarkably accurate predictor of America’s post-war recessions.

Source: The Telegraph

This is the first time that the curve has turned negative since 2007, just ahead of the last financial crisis. In an earlier post, Evans-Prichard explains that inversions actually mean something important — that bond investors think interest rates are going to be lower in the future than they are now.

A bet on lower interest rates is a bet on lower inflation and poor growth — a sentiment that can become self-fulfilling.

If the yield curve were to shortly switch back into positive territory, it may be treated as an anomaly.

Meanwhile, 10-year German Bund yields recently crashed below zero after a gauge of manufacturing orders dropped to what the article terms slump levels of 40.7 (last seen in 2009). It could be a negative return on 10-year German Bunds is making higher-yielding U.S. Treasuries seem an attractive alternative and, in the process, distorting the market.

Other indicators, however, suggest this could be part of a wider malaise.

Source: The Telegraph

Trade war or not, the Chinese economy is in the grip of a long-term cyclical and structural slowdown.

Recent fiscal stimulus from tax cuts and spending could add about 1%, to GDP but this is a far cry from the stimulus of 4% in 2015-16 and 10% of GDP a decade ago following the financial crisis.

China isn’t going to ride to the rescue this time. The article quotes Capital Economic’s proxy measures of the Chinese economy, suggesting real growth is closer to 4.0-4.5% this year. Even with the uplift in sentiment that a settlement to the trade dispute between the U.S. and China may bring, it is unlikely this will result in a strong resurgence in global growth.

Europe, in particular, has no room for stimulus with the European Central Bank stopping quantitative easing last year and negative interest rates still prevailing in some economies. Heavily indebted states, like Italy, are said to be into the third quarter of recession just as bank credit is becoming constrained.

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Despite some of the dire data, Evans-Prichard is not predicting an outright recession, but rather a period of stagnation during next year. His view is predicated on the expectation that the U.S. should continue with positive — if slowing — growth and that emerging-market growth may be sufficient to offset the slowdown in Europe.

Nevertheless, he cautions a close watch on that inverted yield curve; if it perseveres, it could be a harbinger of worse to come.

Observers outside the U.K. have probably viewed the Brexit process with a generally sanguine approach, assuming that the mother of all parliaments would come — in that most British of traditions — to some kind of pragmatic solution to the wide disparity of views and positions following the 2016 referendum in which the country voted to leave the E.U.

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The British people likewise assumed their politicians were capable of negotiation and compromise to reach a, if not optimal, at least a “least bad” outcome, to muddle through in the British way.

But just about everybody has lost patience with the process and, in particular, the incompetence of Britain’s Prime Minister Theresa May, who keeps coming back to Parliament with the same plan only to have it resoundingly thrown out — not just by the opposition, but by many of her own MPs.

Although the E.U. has agreed to a short extension to the March 29 departure, date it is dependent upon Parliament accepting May’s current and twice voted-down plan.

Whether that happens remains to be seen, but an interesting article by Tobias Buck in the Financial Times illustrates graphically why reaching a compromise solution is so important.

Hard Brexiters — that is, those who would like to see the U.K. leave the E.U. with no agreement — would call articles like that in the Financial Times to be part of “project fear” (fake news, if you like) intended to blow out of proportion the consequences of a hard Brexit, to scare Remainers and those in the middle ground against a hard, no-deal Brexit.

Hard Brexiters, as they are termed, see no adverse consequences to crashing out of the E.U. without a deal or that any such consequences are a price well-worth paying for Britain’s independence from Europe.

But while the voters and businesses are sometimes influenced by their hearts, history shows they are better advised sticking to the facts and making decisions with their minds. Few sane economists or business people are suggesting there will not be consequences, however much one party or another disagrees with a particular analysis or report.

Source: Bertelsmann Stiftung via Financial Times

The Financial Times article quotes Germany’s Bertelsmann Foundation, which issued a report last week that estimates that the U.K. alone will suffer income losses of €57 billion ($64 billion) a year if it leaves the E.U. without a deal. The rest of the EU will lose €22 billion ($25 billion), almost half of which will fall on Germany, which is Europe’s largest economy and a big exporter to the U.K., the Financial Times states.

On a per-capita basis, however, Britain and Ireland will probably be the biggest losers by far.

U.K. income is expected to fall by €873 ($987) per head, while the equivalent figure for Ireland is €726 ($821). The French are estimated to be worse off, to the tune of €120 ($136) per head, and the Germans by €115 ($130).

Displayed on a map, the impact can be seen to correspond very closely to geographical proximity. Those states, even regions within states, closest to each other are likely to suffer the most.

Source: Bertelsmann Stiftung via Financial Times

Likewise, industries with extensively integrated supply chains across U.K.-E.U. borders surprisingly will not feel a greater impact than those which rely on local supply chains. As such, automotive, aerospace, pharmaceuticals, consumer goods and agriculture, to name but a few, will be most impacted.

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Britain and, to a lesser extent, the E.U.’s lack of preparedness for a hard Brexit shows just how both sides were making the assumption that the other’s intractability was simply a negotiating tactic.

The reality is that even a three-week extension may not be enough for the British Parliament to agree to May’s plan and a hard Brexit with no formal agreement in place is for the first time becoming a real possibility.

[Editor’s Note: This is the second of a two-part series on steel supply and prices. Revisit Part 1 here.]

Actual Chinese Steel Prices

Looking at longer-term trends in Chinese steel prices, we can see after hitting a low during mid-to-late 2015, prices trended upward overall (with some ups and downs along the way). For example, prices dipped in summer 2016, in spring 2017 and somewhat less so in spring 2018.

More recently, prices dropped off last fall:

Includes partial March price data through the 12th. Source: MetalMiner data from MetalMiner IndX(™)

HRC and CRC prices trended very similarly, with the price gap narrowing over time. In fact, Chinese CRC prices stood higher in August 2014 than today’s prices. However, prices for CRC have remained above 4,000 RMB since August 2017.

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HRC prices increased slightly, while plate prices started out lower but trended higher than CRC. Over time, the price differential for HDG increased; however, the price trends reliably with HRC and CRC, especially since August 2017.

U.S. HRC Versus Chinese HRC Prices

Chinese HRC prices turned around in February and have gained momentum in March.

Includes partial March price data through the 12th. Source: MetalMiner data from MetalMiner IndX(™)

Prices moved similarly for both U.S. and Chinese HRC late in February and into March.

Meanwhile, the price gap between Chinese and U.S. prices narrowed into the early months of 2019:

Source: Analysis of MetalMiner data from MetalMiner IndX(™), including price data through March 12

U.S. CRC Prices Versus Chinese CRC Prices

China CRC prices have also increased in the early months of 2019.

Includes partial March price data through the 12th. Source: MetalMiner data from MetalMiner IndX(™)

The price gap between Chinese and U.S. prices narrowed, but still remains wider than prior to imposition of the U.S.’s Section 232 tariffs of March 2018.

However, with the shrinking price gap, U.S. purchases of U.S. domestic CRC, like U.S. domestic HRC, became relatively more attractive again:

Includes partial March price data through the 12th. Source: MetalMiner data from MetalMiner IndX(™)

Implications for Buying Organizations

What can we expect from the Chinese government in terms of production reductions?

Why do high-level goals, such as reduced production, fail?

“The profit gained from selling one ton of steel is less than the profit from selling one dish of fried pork,” Shen Wenrong, chairman of the largest private steel company in China, was quoted as saying in a 2015 Bloomberg article. This points to a lack of actual willingness of Chinese domestic producers to throttle production.

China’s stated policy of production reduction has not happened on a net basis, even after environmental protocols paused production at times. At any rate, production and export figures continue to rise out of China, even as the domestic economy apparently weakens.

Given that global production capacity for steels continues to increase, we can expect this to have a depressing effect on steel prices overall.

On the other hand, if Chinese production moves upstream, it is realistic to expect price increases that stick as production becomes more advanced.

Even with China’s continued increase in production, U.S. imports of steel from all global markets decreased by 11.5% in 2018 over the year prior, according to the American Iron and Steel Institute. Revenue also improved overall for U.S. steelmakers, according to government data.

However, what happens in China price-wise, will not stay in China.

Pricing impacts in China continue to affect global prices given the country’s consistent global share of production numbers at around the 50% over the past few years.

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As the Chinese government pushes the steel industry toward more advanced production, we can expect no less from domestic industry players in the U.S. As newer production facilities come online, we can expect to see closures of older production facilities. On a net basis, that is a good thing. If the U.S. industry continues to revitalize itself toward building long-term sustainable competitive advantages, it could avoid the so-called “Steelmageddon.”

According to Bank of America Research Analyst Timna Tanners, Steelmageddon looms on the horizon due to massive planned capacity increases in the U.S. steel industry.

Her analysis indicates the equivalent of around a 20% capacity increase when aggregating investments across companies and production methodologies over the next few years. Due to the massive ramp-up, the Steelmageddon theory predicts 2022 or so as the time when we may see greatly suppressed prices, and therefore rampant mill closures, due to a steel supply glut in the U.S.

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Meanwhile, in recent years, the Chinese government policy for the steel industry focused on capacity reduction and shutting down outdated plants. These closures resulted in an estimated reduction of 300 million metric tons of China’s steelmaking capacity.

In addition to these outdated blast furnace steelmaking facilities closing during the past few years, others still in operation face ongoing production restrictions during pollution alert periods. While some outdated capacity closed, other facilities with the latest technology brought new capacity onstream.

This “upgrade strategy,” if we could call it that, could have profound ramifications.

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Well, some folks have been talking about it for a while, but figures this week suggest the long-anticipated slowdown has arrived.

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Negative numbers out of China have been reported for some months now, particularly falling PMI figures suggesting a steadily deteriorating outlook. Beijing has set a target of GDP growth range of 6.0-6.5% this year, according to The Telegraph, down from a hard target of 6.5% over the last two years, and blamed the trade war.

It’s debatable whether China will even manage 6% this year. While the trade war with the U.S. has exacerbated problems, the slowdown started before President Donald Trump’s Section 232 and Section 301 actions.

Nevertheless, the trade war is certainly making matters worse.

Another article in The Telegraph reports a sharp fall in Chinese shipments. Imports and exports are both falling, while Premier Li Keqiang is quoted as saying this week that “Instability and uncertainty are visibly increasing and externally generated risks are on the rise, downward pressure on the Chinese economy continues to increase, growth in consumption is slowing, and growth in effective investment lacks momentum.”

Until now, a sluggish Europe and a slowing China were being counterbalanced by a robust U.S. economy and decent growth in other emerging markets.

But last week, shock jobs data suggests U.S. growth is not a given.

The 20.7% slump in February was four times greater than predictions of a 5% decline, with just 20,000 workers added to payrolls — some 160,000 fewer than expected.

Some are attributing the sharp slowdown to the impact of tariffs and negative investment sentiment, mounting pressure on the president to reach a deal with the China this month. The tariffs were promoted as a solution to the growing trade deficit, but so far at least the opposite has prevailed.

The U.S. Department of Commerce is quoted as saying last week that a 12.4% jump in December contributed to the record $891.3 billion goods trade shortfall last year. The overall trade deficit surged 12.5% to $621.0 billion, the largest since 2008, effectively junking suggestions that the U.S. could tariff its way out of the deficit.

The situation may not have been helped by the president’s tax giveaway that has in part been spent on the import of luxury goods, such as autos. The impact of higher domestic prices, though, seems as much psychological as actual, with consumers postponing purchases in the face of rising prices.

Salaries are rising, unemployment is low, consumers are not fearful of their future in the way they are in a recession, but they may be deferring buying in the hope of a trade deal and a reduction in costs later in the year or next.

The danger is by then we really may be in a recession if the economy, both in the U.S. and globally, does not get back on track this year.

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Negative sentiment has a tendency to be self-fulfilling.