Tuesday, July 8, 2008

China and Olympic Impact

Interesting article in the Wall Street Journal about the final preparation for the Olympics. I have wondered if the oil starting to roll over has to do with China curtailing purchases as the Olympics approach. How long does it take a tanker to get to China ports and unloaded to the various key points from the Middle East and from America? 2 weeks, 4 weeks? Life is all about what happens at the margin. To many people focus on absolute numbers but if China has been stockpiling oil, diesel, and unleaded gasoline in preparation for the Olympics and then all of sudden that demand disappears, it could be a small part of the equation in the world but have a large impact as that marginal demand suddenly disappears.


Polluting factories across a huge area covering four provinces will be idled, reducing steel output by as much as five million tons, about 12% of the country's monthly output. They extend to the neighboring port city Tianjin, where 40 factories and 26 building sites will be shut down.

In Beijing, the government has suspended operations at two major facilities owned by Beijing Eastern Petrochemical Co. because it is near the Olympic venues. Rock quarries and cement factories in Beijing will also suspend work.

I do not think it is an accident that oil and other metals are rolling over. In fact metals started rolling over several months ago which would make sense under this hypothesis because the construction of the actual buildings needed this material months ago. The oil could still be stockpiled until the Olympics start. I think this is a much bigger market moving event than people give it credit for.

Another serious impact of the Olympics could be the increase of the Yuan after the Olympics. Some have speculated that after the Olympics the government will then allow the currency to appreciate much more quickly to help fight inflation. That would also have a far market reaching impact.

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