The iron ore outlook keeps getting worse. Chinese property is stuffed. Sales are going nowhere. Car sales growth is stalling:
The infrastructure pipeline is far below last year:
Steel demand is down and production collapsing after overproducing in Q1:
Moreover, the much-celebrated H2 recovery for property is going up in junk spread flames. There is no funding for developers.
According to BofA:
“China HY property widened 272bp WoW to 4,166bp as of May 17, due to KWG default and concerns on sustainability of physical market recovery”.
“The current spread implies a breakeven default rate of 60% in China HY property, assuming a 70% loss on default. For the defaulted HY developers, the average WoW price change was -1.1 and -8.4% in absolute and percentage terms, respectively (Exhibit 9)”.
“PBoC published 1Q23 monetary policy execution report, incl. home is for living not for speculation, not using property measures as short-term stimulus, etc”.
“Around 20 cities have announced policies to support the group purchasing of new homes and loosen the control over new home prices for such group purchases per Sina”.
“Debt repayment: Longfor repaid 10% of its HKD15.3bn syn loan due in Jan ’24 per Debtwire.
“Credit events: KWG defaulted on US$119mn redemption payment on 6% ’24 note.
“The company is preparing for offshore restructuring according to REDD. Yida defaulted on missing the interest payment of 6% ’25 note”.
“Fantasia’s second largest shareholder opposes the debt-to-equity swap term in the restructuring plan per Bloomberg”.
“Central China could be forced into liquidation by creditors over defaulted bills per Debtwire. Sino-Ocean seeks to defer the loan payment due in Jun by 12 months per Debtwire. Dalian Wanda is in discussions with onshore banks over project loan extensions per REDD”.
As things stand, iron ore is going to crash in H2.
