A new report from RBS attempts to guage the extent and duration of China’s infamous metals stockpiling:
RBS: The huge rise in Chinese imports has been a central pillar of the recovery in base metal prices this year. But a hefty portion of the imports has without doubt been for stockpiling purposes. Stockpiling activity has been undertaken by both the State Reserves Bureau (SRB) and several provincial Chinese authorities. The SRB apart, it remains tricky, however, to identify the nature of the stockpiling and to quantify how much metal has been bought. The activity cannot easily be distinguished from consumer restocking and/or speculative hoarding.
It is difficult to pin down the tonnages and to identify the type of stockpiling involved, but I am convinced that much of it has been speculative. The stockpiles are a potential burden and constitute one of the headwinds I foresee for 2010. Yet the individual metals vary greatly on both counts and the differences potentially have major implications for future relative price performance.
Specifically, China is specifically big on copper, aluminium, zinc, and nickel. But as we move into 2010, analysts are debating whether or not China’s stockpiling bonanza will continue:
The large metal inventories that have built up have not simply disappeared and I suspect the process is coming to an end. Even if material is not released onto the market, I think it likely that Chinese base metal imports will decline further from their Q2 09 peak.