China's industrial metal inventory situation is more serious than a few years ago

Economics in Europe, America and China

Metal prices fall to multi-month lows, weak demand outlook

Despite the bad situation, analysts emphasized that the current situation is slowing rather than crashing

China’s metal warehouses have been jammed. Workers began to pile iron ore in grain storage areas and store copper in parking lots. At this time, you know that the global economy may have problems.

Qingdao Port is one of the largest iron ore import ports in the country. The iron ore there is piled up into hundreds of hills, each of which is as high as three floors, and gradually piled up to the place where there is a “grain silo” mark. And even piled up on the street.

Looking further south, Shanghai Customs Bonded Warehouse is using a parking lot to store more and more copper stocks - this is an unusual sign that the global metal price outlook is not good, people can not help but suspect that walking in other parts of the world is heavy At the moment, can China maintain its own economic growth rate?

The commodity market has always been surprised at the expansion of China's first-quarter inventory because it coincided with the Lunar New Year holiday and the factory's production slowed down. Then, with the acceleration of industrial activity, inventory will gradually decline in the second quarter.

However, this year's situation is quite different.

Shanghai's bonded warehouses have the largest copper stocks in the country. The current level is twice the average of 300,000 tons in the past four years, and iron ore stocks are also about one-third higher than the average of 74 million tons.

China is the world's largest importer of industrial metals. The imported metal supplies some domestic demand after processing, and some of it is used for export.

Several member states in the euro zone have fallen into recession, and people are very worried that several countries will lose their solvency. The situation in the United States is also not good. The economic recovery seems to be somewhat incompetent.

Only the Chinese economy is still growing, but the pace has slowed down. Economists still believe that the economic slowdown will end soon, but it is hard to say how to end, because the rest of the world seems to be going down.

"The new orders have been very slow compared with the same period last year," said the manager of a large copper tube production plant. He refused to be named because he has no right to comment on the media.

“As a result of weak demand, we have reduced production accordingly, shut down a production line, and reduced the number of shifts.”

The slowdown has caused severe impacts on some small and medium-sized manufacturing companies and traders. These companies have the vast majority of the country’s metal industry. In the past year, local media reported that some steel traders committed suicide and some poor factory owners went out in debt.

This week, BHP Billiton, the world's largest mineral company, announced that it has postponed a planned expenditure of US$80 billion. The plan centers on China and plans to expand its iron ore, coal, energy and base metals sectors in the next five years.

However, Jacques Nasser, chairman of the company, said that commodity prices are expected to continue to cool and investors have lost confidence in the global economy. This is the most cautious rhetoric he has published so far.

Misinterpreting the market

During the year, China’s imports of refined copper have soared by more than 70% to 1.1 million tons. The demand for Chinese manufacturers is expected to increase by up to 7%. Iron ore imports increased by 6% over the same period, while traders estimated that domestic demand growth was much lower.

Copper is used in construction and electrical appliances, and iron ore is a raw material for steel production.

In terms of copper, Chinese traders seem to have misjudged the fundamental situation. In November last year, a large number of purchases were made. It is expected that demand will rebound after the Spring Festival.

However, buyers did not appear at all. At present, there are as many as 1.4 million tons of copper in China, which is the most since 2009. According to the Shanghai Stock Exchange, copper inventories fell by 3.5% in the past month, only half of the same period last year.

"The copper stocks' turnaround time used to be only one to two months, but now it's an average of six months or more," said a manager at Shanghai Yangshan Port Bonded Warehouse.

"Inventories are falling very slowly."

Excess inventory has prompted some companies to take copper to the London Metal Exchange (LME) for sale, a move that further weighed on the price of the LME indicator contract.

In the past, investors borrowed copper as a collateral for *** to bet on *** appreciation or invest in real estate, and now the attractiveness of copper as a tool has also been lost.

Three-month copper on the London Metal Exchange (LME) fell 9% over the past two weeks, hitting a four-month low of $7,625 per tonne. Many traders estimate that testing $7,500 or lower is only a matter of time, which may trigger panic selling.

The situation of iron ore is not much better. According to the data of the Bank of America Merrill Lynch, the average rate of digestion of steel stocks this year is 10%, compared with an average of 20% in the past five years. Iron ore prices have fallen by 8.3% so far this quarter.

Steel prices have also fallen by more than 5% this year. Despite weak demand, steel production still stands at a record high.

Sources and traders of the smelting industry said that some Chinese steel mills have delayed the delivery of iron ore from miners including Vale (VALE5.SA:) because the steel market slowed down the demand for iron ore and steel The manufacturer expects prices to fall further.

Slow down rather than crash

Although a series of Chinese economic data released in April was disappointing and the global economy became more bleak, there has been no sign so far that the Chinese authorities will allow this slowdown to evolve into a hard landing for the economy and will not allow the 2008 plunge to repeat itself. .

In April, the added value of industrial enterprises above designated size rose by 9.3%, which was lower than the 12% forecast and the weakest in three years. The total retail sales of consumer goods was also disappointing, only increasing by 14.1%, which was lower than the 15.2% forecast.

Trade data and bulk imports also tend to be weak.

However, the global financial crisis triggered by the collapse of Lehman Brothers four years ago affected the economy as a whole: factories suddenly shut down, millions of workers were laid off, and ports stalled. Only when the government launched a $600 billion stimulus plan did the situation turn for the better.

This time, orders still come from sources, labor shortages in some industries, and urban salary inflation is still a headache for employers.

Both HSBC and the official Purchasing Managers' Index (PMI) have improved recently, suggesting that the darkest period for China's overall manufacturing industry may have passed.

However, the stagnant freight train in Qingdao port may tell you that it is another matter.