Analysis: China's towering metal stockpiles cast economic shadow

Fri May 18, 2012 3:53am EDT
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By Fayen Wong and Jane Lee

QINGDAO, China (Reuters) - When metals warehouses in top consumer China are so full that workers start stockpiling iron ore in granaries and copper in car parks, you know the global economy could be in trouble.

At Qingdao Port, home to one of China's largest iron ore terminals, hundreds of mounds of iron ore, each as tall as a three-storey building, spill over into an area signposted "grains storage" and almost to the street.

Further south, some bonded warehouses in Shanghai are using carparks to store swollen copper stockpiles - another unusual phenomenon that bodes ill for global metal prices and raises questions about China's ability to sustain its economic growth as the rest of the world falters.

Commodity markets are used to seeing China's inventories swell in the first quarter, when manufacturing slows down due to the Lunar New Year holidays, and then gradually decline during the second quarter when industrial activity picks up.

This year, however, is different.

Copper stocks in Shanghai's bonded storage, the biggest in China, are now double the 300,000 metric tons (330,693 tons) average of the past four years and iron ore stocks are about a third more than their 74 million metric tons average.

China is the world's biggest buyer of industrial metals, which are then manufactured for domestic use or exported to the rest of the world.

Several euro zone economies are in recession and there are serious fears about the solvency of several more. The United States, the world's biggest economy, is sputtering along, with a recovery just out of reach.   Continued...

A labourer walks on coils of steel wire at a steel market in Shenyang, Liaoning province April 13, 2012. REUTERS/Sheng Li