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China’s commodity stockpile gamble

Business, China, Economics
By John Richardson on 05-Aug-2009

Source of Picture: Australiannews.com

In this article in the South China Morning Post (you can register for free for 14 days if you are not already a subscriber) Michael Pettis makes the argument that China is taking a big risk by stockpiling commodites such as iron ore, copper and oil.

Inventory building is on the assumption that the current strong growth will be maintained. But as we have highlighted on many occasions on this blog, dangerous imbalances make a fall in growth seem more likely.

It doesn’t seem logical that in the mighty scheme of things chemicals are being strategically stockpiled as buying chemicals as a hedge against future price rises is far less critical than oil.

But the rebound in Chinese demand for oil – with a lot going into storage – has helped drive up the global price of crude. And, of course, chemicals have followed.

And what has made China well which might make it sick again – excessive loan growth – has helped speculation in commodity chemicals and polymers.

As my fellow blogger Paul Hodges has said before, “Hope for the best, but prepare for the worst”.