In my family, there is the story of how, when one of my aunts sold her house, her sisters, helping her empty the place, found 27 boxes of Fab detergent squirreled away in the kitchen cupboard. In case she should ever run out, and besides it was on sale, you see. Something like this may be about to happen to China.
This week’s Forbes has once again posed the questions sporadically floated for some time: what happens when the Chinese realize they have over-bought commodities? Did the Chinese inadvertently create a mini-bubble in commodities?
In the depths of the financial crash, when the global economy seemed to be unable to find bottom and the prices of oil, gas and metals were in freefall, China, as we know, went on quite a shopping spree.
Everyone was willing to sell and China gave loans in exchange for future guarantees on oil and gas from Russian companies, Brazil’s Petrobras, and many others. They went shopping in Africa, Latin America and Australia, snapping up commodities at great prices (and not always as low as they could have gone, either). Overextended mining giants like Rio Tinto sought out China for huge cash infusions to keep them afloat — though that deal, of course, obviously ended in disaster with Rio Tinto pulling back as prices improved and China retaliating with charges of spying.
Most investors are not betting on metal futures. Oil and gas prices seem unnaturally high, given the lower demands. Metals like copper have piled up in Chinese warehouses. Forbes reports China has imported nearly 300 million tons of iron ore this year, and nearly a half million tons of copper more than it needs.
Even with all the building going on in Shanghai for next year’s World Expo, even with their own stimulus package, even with the Chinese banks supporting it, it seems impossible that China will actually need all this stuff in the foreseeable future, especially with world demand still slow and its own exports down.
Chinese buying has slowed. Will the oil, gas and metals prices hang in there till there is a real economic recovery, or again crash to reflect actual demand?
