For weeks, the ships have been lining up 10 deep at China's booming Qingdao Port, waiting to unload their cargo into storage facilities that cannot keep pace with the thousands of tons of raw materials coming in.
With imports of iron ore, crude oil and other raw materials spiking – and reports of 90 ships at a time waiting their turn to unload – China's continuing growth, fuelled in part by aggressive government spending, has been keeping world commodity prices afloat.
As the global economy continues to falter and Chinese exports plummet, there is growing concern that the stockpiling may soon come to a halt, leading to further, painful drops in commodity prices.
“The level of [iron ore] importing doesn't match the level of steel production so far this year, so there's a considerable amount of stockpiling going on,” said Tim Huxley, chief executive of Hong Kong-based Wah Kwong Maritime Transport Holdings, who along with many others in the shipping industry is grateful for what he called “a shot in the arm” but skeptical that the stockpiling can continue – especially since many of those container ships are sent away empty, without export orders to fill them.
At the same time, China is also stockpiling raw materials used in industrial production rather than exporting them, according to complaints lodged with the World Trade Organization by the U.S. and the European Union on Tuesday. They allege that China is using illegal duties and fees to crimp exports, giving its manufacturers an unfair advantage.
Both the stockpiling of imported commodities and the hoarding that is alleged in the WTO complaint could be inflating global prices for resources.
The risk is that if China's appetite for metals and oil begins to fade as restocking concludes and the rest of the world's demand for goods produced by the Asian economic superpower remains weak, any recovery in commodities could be at risk, undermining the broader recovery. Canada's commodity producers could be in for another bout of serious pain.
China's buying has largely offset the plunge in base metals demand from Europe and North America. Despite Chinese demand, however, global copper consumption contracted by almost 15 per cent in the first quarter, and is projected to be down about 14 per cent in second quarter.
“I question whether we are actually yet seeing a pickup in underlying consumption in China,” David Wilson, the London-based director of metals research at Société Générale SA, said in an interview Tuesday in Toronto. “China has been the one bright spot this year. If there is a risk, it is that we are attaching too much reliance to China being able to drive a pickup in the rest of the world. China is just looking after China,” he added.
Chinese demand for raw materials has been twofold. First, though most actual figures are kept secret, the Chinese government has been openly buying up commodities including crude oil, copper and iron ore for months, in what many analysts believe is a way to diversify its sovereign wealth beyond risky U.S. dollar investments. And second, state-owned enterprises and private firms have taken advantage of lower prices to restock supplies that dwindled during last year's record prices, in anticipation of increased demand for new roads, railways and high-rise buildings, as well as continued factory production promised by their government's four trillion yuan ($668-billion) stimulus package, issued last fall.
China's demand has helped keep many Canadian mining firms above water during the global recession. Citing strong sales to China, Teck Resources Ltd., TCK.B Canada's largest base metals miner, recently said its 2009 coal production will be at the upper end of its forecast.
“China is buying our coal and they are telling us the want to buy more in the future,” Teck spokesman Greg Waller said in an interview.
