uploads///Aggregate financing

China’s Credit Growth Slows Down: What It Means for Iron Ore

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Apr. 2 2018, Updated 9:30 a.m. ET

Aggregate financing

Aggregate financing in China (MCHI), which reflects the total funds provided by a financial system to its nonfinancial sectors and households, was ~1.2 trillion yuan in February 2018 compared to ~3.1 trillion yuan in January 2018. The figures for February are not comparable to last year, mainly due to the timing of the Chinese New Year.

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New yuan loans

China’s new bank loans reached 839.3 billion yuan in February 2018 compared to a record 2.9 trillion yuan in January 2018. That figure is 326.4 billion yuan less than the same period a year ago. Economists were expecting new yuan loans to be 800 billion yuan. The decline was expected in February due to the Lunar New Year break.

M2 money supply growth

The M2 money supply, which includes cash, checking deposits, savings deposits, money market mutual funds, and other time deposits, grew 8.8% in February 2018 from February 2017. It was higher than 8.6% growth in January 2018 and 8.1% growth in December 2017.

China’s credit growth metrics have slowed down considerably after a spike in January. The government’s intervention to slow down the pace of credit creation has been taking effect. In fact, most market participants believe that going forward, we’ll see a slowdown in total aggregate financing as well as new loans.

Slower credit growth, in turn, could also mean lower demand for steel as well as iron ore, which would be negative for raw material suppliers (XME) and steel mills Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and the Asia-Pacific division of Cleveland-Cliffs (CLF).

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