China’s uncertainty principle

May 01, 2010 | 06:30 AM | Kevin Foster

It's a basic rule of investing that you should distinguish between risk, which is largely measurable, and uncertainty, which isn't. Embrace the former and, unless you have nerves of steel and deep pockets, be very wary of the latter.

Anyone planning to ship scrap to China in recent weeks would certainly have been reminded of the difference between the two.

The Chinese scrap trade has never been simple sudden tightenings of customs inspections, contract defaults and sharp swings in demand have always posed risks for sellers. The rewards—$500-a-tonne ferrous scrap at the docks, for example—have recently been enough to justify them.

April's announcement by China's Customs Bureau that it was planning new rules for scrap imports was another matter. Depending on who you spoke to, the rules would ban all loose scrap, require shippers to bale or bag all material, or effectively shut out some mixed-grade shipments. Or none of the above. "From first-hand discussion with Customs people, I can tell you that they don't exactly know how to enforce these regulations yet," one industry official said.....

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