China signals end of stockpiling

A RECORD-BREAKING run of commodities exports to China that has sustained the Australian economy may be set to end, with Beijing officials and advisers announcing an end to "strategic" stockpiling, and massive iron ore contracts likely to expire today.

A key state planning official has signalled a halt to government buying of copper, aluminium and other high-value metals because prices have risen too high.

"We don't anticipate that the country will continue to build its reserves," said Yu Dongming, the head of the metallurgical department of the National Development and Reform Commission.

China's resource buying spree helped Australia be the only significant economy to record overall export growth since the global financial crisis began.

Chinese buying has more than offset precipitous falls in orders from Japan, Korea and Taiwan, and helped resources and share prices to recover.

Zhang Bin, an economist with the Government's most influential advisers, the Chinese Academy of Social Sciences, warned that Beijing was leaning against Chinese speculative buying of a range of commodities including Australia's most lucrative exports, coal and iron ore.

"Too much increase in inventories of commodities is not a good thing because the economy is still not that strong and cannot consume this level of imports of iron ore and coal."

A decline in exports to China would ripple through the Australian economy.

Robert Rennie, a currency analyst at Westpac, said the dollar could fall with export volumes and prices.

"I think the risks are weighted to the downside," Mr Rennie said. "If China does slow demand for those key commodities, it is not entirely clear there is another obvious buyer out there."

Analysts say recent exports to China may be as good as it gets for Australia.

"Iron ore imports seem to have started to slow down," said Paul Bartholomew, the Shanghai editor of Steel Business Briefing. "I can't see it bettering the 57 million tonnes ¡­ in April."

Chinese buying will also be complicated by the failure of Australian miners and the Chinese steel industry to agree on new contract prices this year.

If an agreement is not reached by midnight tonight, then a large proportion of iron ore sales contracts will automatically expire - for the first time in the 40-year history of benchmark contracting.

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