Inflation at Two-Year Low Spurs Commodity Slump: China Overnight

Chinese stocks traded in the U.S. fell the most in two weeks as energy and commodity producers slid, after inflation in the world’s second-largest economy eased to the lowest level since January 2010.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in New York slid 1.7 percent to 89.55, the most since June 25. Aluminum Corp. of China Ltd. dropped the most in two weeks as the metal’s prices retreated. PetroChina Co. and Cnooc Ltd. tumbled for a third day. Yanzhou Coal Mining Co., the country’s fourth-largest miner, posted the longest losing streak in a month as the price of thermal coal in the nation declined for a ninth week.

Government data showing the consumer price index rose 2.2 percent in June, the slowest pace in more than two years, follows the second interest-rate cut in a month last week. Premier Wen Jiabao said downward pressure on the economy is still “relatively large” and the government will intensify policy fine-tuning, the state-owned Xinhua News Agency reported on July 8. Economists estimate the Chinese economy expanded at the slowest pace in three years during the second quarter.

“Investors in Chinese equities are stepping back,” Derrick Irwin, who helps manage $2.5 billion in the Wells Fargo Advantage Emerging Markets Equity Fund, said in an interview at Bloomberg’s New York headquarters yesterday. “It’s difficult to make money by betting around the margins of consensus, and the consensus is that China is slowing.”

‘Greater Urgency’

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., declined for a third day, retreating 1.2 percent to $33.05. The Shanghai Composite Index of mainland stocks tumbled 2.4 percent to 2,170.81, the steepest slump in a month. The Standard & Poor’s 500 Index of U.S. shares slid 0.2 percent to 1,352.46 after a jump in Spanish yields above 7 percent intensified concern about Europe’s debt crisis.

Economists forecast China’s exports probably climbed 10.6 percent from a year earlier in June, down from 15.3 percent in May, before the figures due today. The Chinese economy may have expanded 7.7 percent in the second quarter from a year earlier, analysts estimated ahead of government data scheduled for July 13. That would be the slowest pace in three years.

Finance ministers in Europe, where China sends 20 percent of its exports, prepared a gathering in Brussels to work out crisis measures.

“Lower inflation allows you to cut rates while Wen is highlighting that there’s greater urgency to do that because their economy is weaker than they expected,” Alec Young, a global equity strategist at S&P Capital IQ, said in a telephone interview from New York yesterday. “Given the lack of evidence that the easing has done much good, coupled with the negatives out of Europe, most investors aren’t willing to aggressively buy Chinese equities.”

Yanzhou Coal

American depositary receipts of Yanzhou, based in China’s Shandong province, dropped 3.2 percent to $14.95 in New York, the biggest decline in two weeks. They earlier slid to $14.87, the lowest level since October 2009.

China’s benchmark price for power-station coal fell for a ninth week, as slowing economic growth and increased use of hydropower crimped electricity demand.

Coal with an energy value of 5,500 kilocalories per kilogram fell to a range of 645 yuan ($101.25) to 660 yuan a metric ton as of yesterday, according to data yesterday from the China Coal Transport and Distribution Association. The average of the range was 2.6 percent less than a week earlier and the lowest since Nov. 16, 2009, according to data from the association that goes back to the beginning of 2008.

Aluminum Corp., the largest maker of the lightweight metal in China that is also known as Chalco, sank 2.8 percent to $10.50, the biggest drop since June 25.

‘Drag on Growth’

Aluminum for delivery in three months on the London Metal Exchange averaged $2,019 a ton in the second quarter, 23 percent less than a year earlier. The metal rose 1.5 percent yesterday to $1,925 a ton in London.

ADRs of PetroChina, the nation’s largest oil producer, fell 2.5 percent to $122.81, the lowest price this year. The company’s Shanghai-traded shares sank to a record low of 8.86 yuan yesterday. The ADRs, each representing 100 ordinary shares in PetroChina, traded 0.5 percent above its Hong Kong stock, from a 1.1 percent discount in the previous day.

Cnooc, the biggest offshore oil explorer in China, lost 0.7 percent to a one-week low of $196.18 in New York.

“If Europe continues to drag on growth globally, then how could China keep spending on commodity to build the infrastructure,” Michael A. Gayed, chief investment strategist at Pension Partners LLC, which advises on over $150 million in assets, said by phone from New York yesterday.

Ambow Resignation

Ambow Education Holding Ltd., a tutoring and test preparation provider based in Beijing, tumbled 13 percent to $2.78, the lowest level on record, after losing 31 percent last week.

Ambow said chief financial officer Gareth Kung, who joined the company in December, resigned and was replaced by KJ Tan, vice-president of finance, in a July 4 statement. It reported a net loss of $12.7 million in the first quarter, from a net income of $2 million a year ago, in a separate statement that day.

Kung was appointed as CFO at Semiconductor Manufacturing International Corp., the biggest chipmaker in China said in a regulatory filing yesterday to the Hong Kong Stock Exchange.

Semiconductor retreated 1.3 percent to $1.52 in the third day of declines in New York.

LDK Bonds

LDK Solar Co., the world’s second-largest maker of wafers, sank 7.5 percent to $1.86, the biggest loss in a month.

The yield on LDK’s yuan-denominated bonds due in 2014 surged 1.94 percentage points to a record 7.49 percent last week, according to data from Chinabond, the nation’s largest debt clearing house.

The solar maker, based in Xinyu of China’s Jiangxi province, outlined a plan to sell 1 billion yuan ($157 million) of notes before June 30 in an April 5 statement. As of July 6, it hasn’t sold the securities, data compiled by Bloomberg show. Its bonds in Singapore yield 91 percent, compared with the 46 percent yield on Bonn-based Solarworld AG’s debt.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE