There are ominous signs a physical demand shock is playing out in China, which may generate a second-wave hit to prices
London — The scale of the coronavirus hit to China’s giant manufacturing sector was laid bare by the slump in the country's purchasing managers’ indices for February.
Shanghai Futures Exchange holdings of copper, aluminium and zinc are trending sharply higher. More may be accumulating in the off-exchange shadows. Chinese exchange inventories always rise over the Lunar New Year holiday period but this year's build has been faster and bigger than “normal”. Not all Chinese metal markets are being affected in the same way though. Shanghai lead stocks, for example, have fallen by 6,551 tonnes to 38,011 tonnes over January and February.
The CNIA is calling for the government to initiate a stockpiling programme to “alleviate the increase in inventory” at metal producers and address falling prices and operational difficulties, according to Jia.The state stockpiler, the State Reserves Bureau , bought smelter stocks of both aluminium and zinc during the December 2008-March 2009 period, when Chinese manufacturing activity also plunged.
The call for more of the same from the CNIA, which represents all the big metal producers in China, is a sure sign of the stress in physical supply chains right now.
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