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SHANGHAI/SINGAPORE (Reuters) - Chinese buyers are deferring or have defaulted on coal and iron oredeliveries following a drop in prices, traders said, providing moreevidence that a slowdown in the world's second-largest economy ishitting its appetite for commodities. China is the world's biggest consumer of iron ore, coal and otherbase metals, but recent data has shown the economy cooling morequickly than expected, with industrial output growth slowingsharply in April and fixed asset investment, a key driver of theeconomy, hitting its lowest in nearly a decade. Coal and iron ore prices could fall further before recoveringtowards the tail end of the second quarter, traders say, sparkingmore defaults or deferred deliveries. "There are a few distressed cargoes but no one is gung-ho enough totake them. Chinese utilities aren't buying because they have a lotof coal and traders are also afraid of getting burnt. It's verybearish now," said a trader. The defaults come on the heels of a slump in global thermal coalbenchmark prices to two-year lows and increases the prospect of aneven steeper fall unless China revives buying to absorb the globalcoal surplus as exporters ramp up production. "We need China to buy heavily, a severely hot summer across Europefollowed by a long, cold winter, and some production cuts for themarket to rebalance," a European coal trader said. At least six defaulted thermal coal cargoes were being re-offeredat a discount, traders said, including contracts for shipments fromthe United States, Colombia and South Africa. "Many of them signed for the spot cargoes in early April and priceshave fallen around $10 a tonne since then. Say if the Chinesetraders were buying a cape-sized shipment, they'd be suffering aloss of nearly $1.5 million alone," said a trader at aninternational firm who has been offered defaulted cargoes. "That doesn't even take into account the losses on freight rates.So rather than being bankrupted by these deals, they would ratherdishonour the contract to survive," he added. China's premier called for additional efforts to support growth onSunday, signalling Beijing's willingness to take action to bolsterits economy. Some analysts said they were bearish regarding China's prospects ofsteeply ramping up coal imports any time soon. "China doesn't look likely to provide an upside demand surprisewhich could clean up the market in the near-term," said MarcusGarvey, analyst with Credit Suisse, citing high power plant stocksand a slowdown in power generation in April. VALE POSITIVE Traders said they expected demand to pick up next month, coincidingwith peak summer consumption of coal in China. Indonesian Coal Mining Association executive director SupriatnaSuhala said coal exporters faced rising competition, but heexpected any slowdown in China to be "only temporary". Concerns over defaults were also spilling over to the iron oremarkets, where prices have dropped around 10 percent since lateApril to hover at $134 a tonne. "We ourselves have had one of our buyers default on us after just afew hours. We sold the cargo to an end-user in China and a fewhours later the buyer came back, saying 'the market's falling toofast, we want a lower price'," said a Singapore-based iron oretrader. However, the world's largest iron ore miner, Brazil's Vale, said onMonday it was selling iron ore about as fast as it could mine itdespite China's slowdown. "We don't have any problem concerning orders, we continue to sellall the amounts the company is producing. The scenario we seecontinues positive," Vale investor relations chief ViktorMoszkowicz said at an investment seminar in Rio de Janeiro. At the same seminar, though, Brazilian steelmaker Usiminas said itwas scaling back plans to expand its own iron ore miningoperations. In October last year, Chinese mills also sought delivery delayswhen iron ore prices slid nearly 31 percent as weak steel demandforced producers to curb output. For copper, traders said Chinese merchants have been delaying termdeliveries since March, while sluggish demand also prompted buyersto re-export some cargoes. A Reuters poll expects China's economic expansion in the secondquarter to slip to 7.9 percent, which would mark the sixthconsecutive quarter of weakening growth. Reflecting greater caution, BHP Billiton , the world's biggest miner, has put the brakes on an $80 billionplan to grow the company's iron ore, copper and energy operations. Slumping commodity prices and escalating costs have squeezed cashflows, pushing BHP to join rival Rio Tinto reconsidering the pace of their long-term expansion in countriessuch as Australia and Canada. Thomson Reuters 2012 All rights reserved SUBSCRIBE to Mineweb.com's free daily newsletter now. I am an expert from rexleds.com, while we provides the quality product, such as Intelligent Control System , China LED Spot Light Bulb, High Power LED Floodlight,and more.
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