China’s commodity stockpiles remain a complete mystery

China is not particularly forthcoming when it comes to reporting its strategic commodity reserves, leaving analysts playing a guessing game.

China has been trying to cool surging commodity prices by releasing inventory from its strategic reserves. The higher prices of oil, coal and metals have raised manufacturing costs, slowed down factory activity growth, and increased inflation in the world’s largest commodity consumer.  Every week since April this year, Chinese authorities have announced measures to control the price of many commodities, including energy and metals.  

With all those auctions and reported releases of crude and coal from China’s strategic reserves, the market is dying to know how much the world’s top consumer has secretly stockpiled in recent years. 

China is not forthcoming in reporting strategic reserves of anything, including crude oil. So, in most cases, analysts are playing a game of guesstimates, calculations, and conclusions from past behavior to try to measure Chinese stockpiles of strategic commodities, such as crude oil, coal, copper, zinc, and cobalt. 

Knowing how much crude oil and metals China may have stashed could be particularly useful for commodity market analysts and traders. 

Some of them have made estimates. 

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According to consultancy Energy Aspects, China is forecast to have 220 million barrels of crude oil in its strategic petroleum reserve (SPR), covering 15 days of China’s crude demand. Total crude stockpiles, including commercial inventories, are enough to cover 60 days of Chinese oil demand, Energy Aspects analyst Liu Yuntao told Reuters. 

That’s lower than the International Energy Agency’s (IEA) recommendation, which calls for all members to hold a minimum of 90 days of crude reserves. But China is not a member of the IEA. 

For metals, Chinese strategic reserves are seen at 1.5 million to 2 million tons of copper, 800,000-900,000 tons of aluminum, and 250,000-400,000 tons of zinc, according to analysts quoted by Reuters. China is also thought to have around 7,000 tons of cobalt, a key metal used in battery manufacturing.  

Since China rarely reports any commodity inventories, the market is often left guessing how Chinese crude oil imports—and import of key metals such as copper or iron ore—will trend in the coming months.  

More than how much of each commodity China holds, the market is looking at how Chinese authorities have been managing these commodities this year amid a rally in commodity prices. 

China has been tapping into coal reserves to prevent shortages as coal prices soar on tight supplies. The surging price of coal is affecting the downstream sector and the real economy, according to the Chinese state planning body.

China has also reportedly released more than 20 million barrels of crude oil from its strategic reserve in a move designed to curb the recent oil price rally. China’s crude oil imports began to cool as prices rallied. Now, its crude released from the strategic reserve could weaken Chinese imports further. 

In addition, China has been releasing metals stocks from reserves to pull down rallying prices that raise manufacturing costs. 

Analysts see this attempt at commodity price management as effective only in the short term.

“Recent steps by Chinese authorities have succeeded in skimming some froth off commodity prices,” Frederic Neumann, co-head of Asian Economics at HSBC, told Reuters. 

“Fundamentally, however, prices for raw materials are driven by global supply and demand, which Chinese officials can only influence indirectly,” Neumann added. 

China is also showing signs of a slowdown in demand for metals, which could drag down copper and iron ore prices for the rest of the year after a blistering rally in the first half. Chinese factory activity growth slowed down to the smallest in 15 months in July, and imports of copper and iron ore are also slowing down amid surging prices and government-planned curbs in China’s steel manufacturing.   

Demand across most commodities in China is expected to slow down in the second half of 2021, Wood Mackenzie said in a new monthly China Economic Focus report last week. 

“China’s economy is expected to slow down in H2 2021. Slower export growth, rising commodity prices, lackluster infrastructure investment, and expiring subsidies will all drag down the country’s GDP growth. As a result, we should see a deceleration of commodities demand in China,” Wood Mackenzie senior economist Yanting Zhou said. 

This article was originally published on Oilprice.com