From "Thinking about 90% yet?" by Tom Price and Julien Garran, UBS Securities analysts, February 15
From the various company comments, there is little doubt that the JFY10 [iron ore] contract price negotiations now feature a new hostile tone from among the producers … Switching all of China’s trade to spot this year looks feasible to us. With an estimated 70% of China’s trade on spot in 2009 (Vale estimate), an extension to 100% seems possible. Naturally, the move would be aggressive, and China’s mills – already attempting to cap the rising costs of its raw materials trade – would probably refuse to accept. Spot price would lift; China’s domestic production rates would too … Note that if the producers switch all China-bound contract-priced tons to spot pricing, the trade’s spot price must fall. That’s because the reported spot price covers India-China trade only. If it is expanded to accommodate Aust-Braz ex-contract tons on a permanent basis, the trade’s spot’s supply curve would be pushed rightwards, and the price falls (assuming demand and all else unchanged).
From "China’s U.S. Treasury Holdings Register Largest Monthly Decline Since 2000" by Jing Ulrich, J.P. Morgan chairman of China Equities, February 18
According to the latest Treasury International Capital (TIC) data, China was a net seller of US Treasuries in December, cutting its holdings by US$34.2 billion (4.3%) to $755.4 billion. China’s share of total outstanding short and long-term U.S. Treasury securities among foreign holders declined to 20.9% in December, from 23% at mid-2009 … The monthly Treasury Department data suggest that China could be more actively diversifying its currency reserves away from US Treasuries, and we expect the country might be marginally shifting some exposure to other currencies … China’s US Treasury and Agency bond investments as a percentage of its foreign reserves declined from 64.5% in January 2009 to 51.2% at year-end. However, the need to preserve China’s de-facto currency peg and the value of its vast USD holdings will serve to limit the extent to which diversification from US assets can occur. Although many commentators have attempted to link China’s reduction in USD holdings with Sino-US political developments, unattractive yields … mean that the decision to reduce holdings has been rational from a financial standpoint. In general, China is moving toward more active management for a portion of its foreign reserves.