Finimize - 🇨🇳 China's steely problem

What’s going on here?

A $400 billion US federal clean-energy fund is dishing out dollars, eager to clean up the States before the election muddies the waters.

What does this mean?

The Energy Department Loan Programs Office is tasked with supporting advanced energy projects, not least clean and green initiatives. Yet, despite sitting on hundreds of billions of dollars, the department had been holding off on spending them. But concerned that a Republican win could put the office on ice, as it did last time, the current president’s team has hurried projects along. That’s why the office has recently signed a $1.5 billion pledge to a solar panel maker, a $1.2 billion agreement with a battery parts maker, and promised $861 million for solar and battery storage in Puerto Rico.

Why should I care?

For markets: We might not always have Paris.

The US election could change the trajectory of the country’s clean energy plans. Some worry that if the former president wins, he could pull out of the Paris Agreement – an international climate change pledge – again, instead redirecting funding to Republican-favored tech like nuclear power and fossil fuels. Mind you, this isn’t just an American issue. Around the world, election candidates are questioning the cost and speed of cutting emissions. That has investors wary that renewable energy sectors will see less attention and investment, so they’re pulling back from related pockets.

The bigger picture: Rules are made for breaking.

The environmental, social, and governance (ESG) industry was seeing serious shifts even before election season. Europe, the birthplace of the world’s most stringent ESG rules, has been rethinking its hard stance. That’s encouraged green-minded investors to tweak their strategies, anticipating that regulations will soon be more forgiving to fossil fuels. Case in point: Goldman Sachs found that ESG funds are now more invested in oil and gas than they were just a year ago.

What’s going on here?

A key steel price has fallen by 20% this year, as China’s overzealous factories fill the market with cheap metal.

What does this mean?

China makes around 50% of the world’s steel. And even though the country’s buyers are watching their pennies, wary of the stalling property and construction markets, producers haven’t slowed down at all. At this point, Chinese steel rebar prices are down around 20% this year. And at those prices, only around 1% of Chinese steel mills are profitable. So they’re “dumping” steel overseas, selling it for less than it costs to make. And at scale, too: China’s steel exports have reached levels last seen in 2016. To give its own wares a chance against ultra-low prices, Europe has stamped a minimum 18% tariff on Chinese steel – but even with tax and shipping costs, China’s is still cheaper.

Why should I care?

Zooming out: The great tech race.

China’s made it a priority to bolster its tech industry, stat. So the country’s been shipping in semiconductor-making equipment like it’s nobody’s business – the equipment that current trade rules allow, at least. See, the US has clamped down on what chipmaking gear China can buy, and it’s been pressuring Japan to follow its lead. It’ll be tough to choose a side, though. If Japan follows through, China has threatened to restrict access to its rare earth minerals. They’re critical for the car industry, which employs around 8% of Japan’s working population.

The bigger picture: Maybe all that glitters is gold.

The Chinese property market is partly responsible for dragging down the price of iron ore – a key commodity used in steel production – by 27% this year. Diamond prices have been on the slide, too, with China’s luxury-loving shoppers taking a break. Gold’s been the exception, picking up 21% this year to become one of the only assets beating US tech stocks.