The Build-up Of Inventories Has Shaken Chinese Demand For Metals

The build-up suggests that China's metal consumption is still lagging behind after the disruption of industrial activity during the Winter Olympics and Lunar New Year.

How quickly demand recovers now that the celebrations are over, and whether consumers will accept relatively higher prices, will help set the direction for the market in the coming days and weeks. While the central bank left benchmark lending rates unchanged On Monday and declines in new home prices eased last month, there is little doubt that Beijing appears poised to support demand amid widespread troubles in the property sector and other indicators such as falling car sales.

Among Chinese manufacturers, consumption has recovered more slowly than expected, with copper rod producers operating at only 59 per cent of capacity last week, according to the Shanghai Metal Market. The resurgence of COVID-19 cases in eastern China has also affected purchases, it said.

That has helped fuel a surge in inventories. The price of copper held in warehouses tracked by the Shanghai Futures Exchange jumped 28% last week and has more than quadrupled this year. Aluminium and zinc inventories also extended gains. The Yangshan premium, an indicator of refined copper import demand, was at its lowest level since July.

In the ferrous metals market, a slowdown in construction has lifted rebar inventories to a 10-month high, according to Steelhome. Iron ore inventories at Chinese ports have not been that strong since June 2018, despite a government campaign to prevent hoarding and price cuts.

Still, Beijing's efforts to rein in markets such as iron ore and coal certainly foreshadow broader fiscal stimulus that will only boost demand.