China’s economic slowdown has led to a buildup of key raw materials, from steel to soybeans, reflecting weak industrial activity and consumption. This surplus is putting downward pressure on commodity prices, creating challenges for suppliers around the world. The government’s growth target appears increasingly unattainable, raising concerns among the global suppliers who depend on China, the largest importer of raw materials. Some traders may have overestimated China’s post-pandemic recovery, while others might have misjudged the country’s shift from traditional industries to new sectors.
Despite the surplus, China’s stockpiling behavior highlights its focus on ensuring stable supplies. Even when its economy is robust, the country maintains vast reserves of raw materials. For example, China holds the majority of the world’s visible copper inventories and substantial amounts of crude oil and staple crops. This strategy reflects Beijing’s priority on securing resources, even if it means mistiming purchases.
China’s coal stockpiling is a case in point. Following energy security concerns in 2021 and 2022, China ramped up coal production and imports. However, with reduced industrial demand and increased clean energy production, coal inventories reached unprecedented levels by mid-2023, far exceeding previous figures. This trend mirrors what’s happening in other sectors, such as crude oil, where domestic production is up, but demand is slowing due to economic weakness and a push toward decarbonization.
Soymeal inventories have surged as well, driven by large imports of Brazilian soybeans, only to find weak downstream demand. Similarly, the steel industry is grappling with low construction activity, leading to a buildup in iron ore inventories. However, copper, with its ties to both construction and renewable energy, shows more promise. Its prices have fallen, attracting buyers and potentially signaling a recovery.
Overall, China’s commodity surplus reflects broader economic challenges, particularly in industries tied to construction and manufacturing, which may require stronger government intervention to revive growth.
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