By John Garnaut and Beijing
CHINA has shifted from merely the fastest-growing consumer to the biggest buyer by far of Australia’s key metals since the start of the financial crisis.
China set import records in April for copper, aluminium, zinc, nickel and iron ore, in each case beating the previous record,
set in March.
The unprecedented Chinese buying spree, at a time when the rest of the world is shutting down, has caused metals analysts to dust off the belief that the Chinese economy can grow strongly without help from the United States.
"Decoupling is alive and well," Macquarie Bank’s chief of commodities analysis, Jim Lennon, told investors in Seoul yesterday.
But mixed Chinese economic data yesterday raised new questions about how much of the Chinese buying is sustainable.
Growth in industrial production slipped back to 7.3 per cent in the year to April, from 8.3 per cent in the year to March,while electricity production and exports pulled back more sharply.
But fixed-asset investment continues to accelerate. Vehicle sales were up 37.4 per cent in the year to April and purchasing
managers' indices point to strong expansion. Analysts say the divergence between China’s surging metals imports and its more modest underlying economic recovery can be explained by stockpiling for speculative, strategic and industry policy reasons.
"China is restocking while the rest of world is de-stocking and the Government is directly funding the stocking with an
unlimited budget," said Mr Lennon.
China’s copper imports in April were triple the levels of a year earlier, at 400,000 tonnes, while the 440,000 tonnes of
aluminium imports were triple the record set in March.
Import records are also being set for other base metals including zinc and nickel. China’s copper consumption has accelerated this year as the Government builds electricity grids as part of its economic stimulus strategy.
But the surge in apparent copper and aluminium demand is also due to China's Strategic Reserve Board, which is hoarding
copper while prices are relatively low in an attempt to reopen some of the country’s 7 million tonnes of idle aluminium production capacity.
"The SRB is buying aluminium to prop up an industry which is a big employer It’s buying copper because they're going to need it because they see global supply is going to betight," said metals analyst Michael Komesaroff, of Urandaline Resources.
This decade China has accounted for more than 100 per cent of global growth in nickel, zinc and copper consumption,
even before this year's import rise.
But the most stunning shift has been in iron ore, by far China's largest import from Australia. China imported 54.5 million
tonnes of iron ore in April, smashing previous records in both March and February. At this rate, China is now importing
more than five times as much iron ore as the rest of the world combined.
Part of the import jump can be explained by an unexpected revival in steel production - despite a collapse in China's
steel exports.
"State-owned steel companies have told me they want to reduce production," said He Fan, professor of international
economics at the Chinese Academy of Social Sciences.
"But the local governments won't let them because, if they do, the local GDP numbers will look very ugly."
Lower ore prices are due to record inventories and production by Australia and Brazil displacing high-cost Chinese
miners.