China to Boost Commodity Imports to Build Stockpiles

China, the world’s second-biggest energy user, will increase imports of commodities including oil and boost inventories of strategic raw materials while prices are at their lowest in seven years.

China will expand purchases of important resources, Premier Wen Jiabao said in a report delivered to the legislature’s annual meeting today in Beijing. The country will increase emergency stockpiles, the National Development and Reform Commission, the country’s top planner, said separately.

The world’s third-largest economy imports more than 40 percent of its oil, contributing to benchmark oil prices in New York reaching a record $147.27 a barrel in July last year. Oil has fallen about 70 percent from the record as the global recession cuts demand.

“China’s intent to build strategic reserves and product inventory will help mitigate some of the weakness” in domestic oil consumption, Credit Suisse research analyst Prashant Gokhale said in a report today.

The nation’s current strategic stockpiles of mineral resources are insufficient to fend off “global market risks,” the Ministry of Land and Resources said in January, without elaborating. China will build emergency stockpiles of coal and metals such as copper and chrome to guard against potential supply disruptions, the ministry said then.

Government stockpiles of oil will reach 12 million tons in 2010, equivalent to about 30 days of imports, Chen Deming, the former vice chairman of the National Development and Reform Commission, said in September 2007.

Stockpile Plan

The government has finished drawing up a plan to build the second phase of the country’s oil stockpiling with a capacity of 26.8 million cubic meters, the commission said in November. The nation is building four stockpile bases in the eastern provinces of Zhejiang, Shandong and Liaoning, it said.

China is building reserves to take advantage of weak commodity prices and enhance national security, analysts have said. The Reuters/Jefferies CRB Index of 19 commodities this year fell to the lowest level since June 2002.

The Chinese government will tap its $1.95 trillion currency reserves, the world’s largest, to secure resources, China National Petroleum Corp., the country’s biggest oil producer, said last month.

Currency Reserves

China earlier this year entered into an oil-for-loans accord with Brazil and Venezuela. Russia agreed last month to supply China with 15 million metric tons of oil a year for the next 20 years in return for $25 billion in loans.

State-owned companies last month announced plans to invest $22 billion in miners, securing iron ore, copper and zinc assets from debt-laden companies unable to secure funding in the global recession.

China Investment Corp., the $200 billion sovereign wealth fund, may invest in “undervalued” commodity assets, Executive Vice President Jesse Wang told reporters yesterday on the sidelines of a meeting of the country’s legislative advisory body in Beijing.

The nation’s government is buying commodities as it attempts to diversify investments away from Treasuries. China boosted purchases of U.S. debt by 46 percent to a record last year.

China should invest its foreign exchange reserves in gold and copper, rather than in U.S. Treasuries to seek higher returns, Fu Jun, vice chairman of All-China Federation of Industry & Commerce, said at the congress today.

“We don’t need to buy more Treasuries as the returns are low, whereas if China buy copper and gold, the annual returns could be as high as 10 percent,” Fu said.