China and Metal – Playing the Long Game

It is my considered opinion that the West is underestimating China on a number of different levels.

If we want to talk superpower politics, then China has always been a superpower albeit one that has been slumbering for 60 years. Remember the last 100 years is a very short period in China’s history. In 10,000 years communism will be a mere footnote.

China is playing the long game – it can afford to and has the confidence of thousands of years of civilisation behind it. In contrast the US is a little like the playground bully. The US is young, has grown up quickly and become fat, bloated without losing its arrogance. The US has no friends – merely those that want to be seen to hang out with the playground bully and hope for a few crumbs. China is more like the teacher, simply sitting back with a rye smile and watching the children fight it out on the playground and doing its own thing for the long term good of China.

Where am I going with this – a recent post EAFE Pro looked at China’s recent buying of copper and aluminum. I knew such buying was taking place but was surprised at the sheer scale. So why? China is taking advantage of the global recession to buy cheap and stockpile. China knows it will need the metal eventually just to construct the buildings, machines and cars it knows it will need in the future.

Here is the remarkable figure that caught my eye.


These reflect massive increases in imports over a short period of time. Is this all down to the stimulus package? If you have to vast reserves then buying up commodities that you will need in the future is a decent use of the money. Politically this enables China to be even less reliant on Western mining companies.

If one was an investor one would have to consider whether shorting copper is the way to go. If Chinese demand falls will the price follow it or does China intend to keep buying at these brakeneck levels.

Originally published at China Economics Blog and reproduced here with the author’s permission.