* GRAPHIC: China iron ore imports vs. SGX price: https://tmsnrt.rs/307oEG2
By Clyde Russell
LAUNCESTON, Australia, Sept 17 (Reuters) - Is it time tochallenge the conventional wisdom in iron ore and steel marketsthat poor Chinese economic data is actually good news because itmeans Beijing will ramp up stimulus spending, thereby boostingdemand?
The current thinking of 'bad data equals good news' was ondisplay this week, with steel prices rallying after economicnews showed a deepening slowdown in China's factory and consumersectors.
Benchmark Shanghai steel rebar futures gained asmuch as 2.1% in Monday's trade to 3,575 yuan ($505.71) a tonne,the highest in six weeks, before ending 1.5% higher at 3,553yuan.
The increase in steel came as industrial production grew atthe weakest pace in 17-1/2 years, climbing just 4.4%year-on-year in August, down from 4.8% in July and below themedian forecast of analysts polled by Reuters for 5.2% growth.
Fixed-asset investment for the first eight months of theyear rose by 5.5%, below the 5.6% rate forecast by analysts.
Retail sales growth also disappointed at 7.5% in August,down from July's 7.6%, with the drop underlining the notion thatChina's economy is losing momentum amid the protracted tradedispute with the United States.
Since the global recession of 2008, market participants havecome to expect that Beijing will simply open up the stimulustaps when confronted with evidence of slowing growth, given thepolitical and social imperative to keep the world'ssecond-largest economy humming along at an annual growth pace ofat least 6%.
However, Chinese Premier Li Keqiang said, it is "verydifficult" for the economy to keep up a growth rate of 6%,citing the "complicated international situation" and theincreasingly high base from which this expansion has to occur.
China faces "certain downward pressure" from slowing globalgrowth and a rise in protectionism and unilateralism, Li said inan interview published on Monday on the government's website.
STIMULUS HOPES VS. ECONOMIC REALITIES
The official acknowledgement that China's economy is facingheadwinds is likely to fuel expectations of further stimulus,over and above measures already taken, such as reducing thereserve requirements of banks three times so far this year.
Effectively, what steel and iron ore market participants arebetting on is that the expectation of China stimulus spendingwill outweigh the reality of slowing economic growth.
Whether they are placing the correct bet may be answeredsoon enough, as the upcoming China National Day holidays in thefirst week in October may provide a suitable stage forgovernment announcements on new efforts to turbocharge economicgrowth.
In the meantime, it appears hope is trumping reality, withiron ore prices and imports looking robust.
Spot 62% iron ore <MT-IO-QIN62=ARG>, as assessed bycommodity price reporting agency Argus, ended at $97.55 a tonneon Monday, just below the prior close of $99.20, which was thehighest in five weeks.
The iron ore price has rallied 19.7% since hitting aneight-month low of $81.50 a tonne on Aug. 29, amid both someoptimism that Beijing and Washington will resume trade talks andexpectations for increased Chinese stimulus.
Iron ore imports are also recovering from mine closures inBrazil in the wake of a fatal tailings dam disaster in Januaryand a tropical cyclone in Australia in late March.
Official data showed imports of the steelmaking ingredientat 94.85 million tonnes in August, a 19-month high.
August's figure could well be exceeded in September, withRefinitiv vessel-tracking and port data estimating imports mayreach more than 100 million tonnes, although this figure islikely to be revised as the end of the month approaches.
Nonetheless, the strength in iron ore prices and imports, aswell as those for steel are indicative of a sector that expectsbetter times ahead.
Pollution cutbacks in steel-producing regions may also actto support steel prices and margins, which have recoveredsomewhat in recent weeks, leading to a recovery in production inAugust.
The pollution control measures may also result in millsshifting to higher-grade iron ore in a bid to maximise theamount of steel produced for each tonne of the raw material.
Overall, for a bullish view of the steel and iron oresectors to be justified, it will need broad-based stimulus thatsupports all the major pillars of steel demand: residentialbuilding construction, infrastructure projects and manufacturingsuch as automobiles and white goods.(Editing by Kenneth Maxwell)