Chinese construction has sowed the seeds of its own destruction, and that of the commodity producers who have supplied it. The unprecedented build up of metal stocks in China suggests the global economy is in real trouble, Reuters reported yesterday.
Iron ore is being stockpiled in granaries and copper in car parks, because the warehouses are overflowing. Copper stocks in Shanghai’s bonded storage, the biggest in China, are now double the 300,000 metric tons (330,693 tons) average of the past four years and iron ore stocks are about a third more than their 74 million metric tons average.
The glut is prompting some firms to sell copper into London Metals Exchange warehouses, a move which would further depress the exchange’s benchmark prices.
But this is just the start, given just how big the Chinese property bubble is. China’s residential real estate prices, in aggregate at construction cost, are 350% of GDP. The only two economies to have had higher numbers were Japan in 1989, at 375% and Ireland. So China’s property collapse will be epic, as will the fall in commodity prices will be.
China, as 8% of the world’s economy, was generating 80% of the marginal demand for iron ore, cement, and steel.The attached chart from Goldman Sachs, showing just how far beyond the norm China’s cement consumption has been, says it all.