China: Steep rise in SHFE base metals inventories raising alarm

• Demand slowdown drives inventory accumulation
• Export pressure may limit global metals prices

Metal Intelligence Centre: SHFE inventories have seen an unusually sharp build-up this year. The year-to-date increase, which reached 530,523 t last week, marked the second-highest accumulation recorded for this period since 2012.

This is not the first time that SHFE stocks have risen sharply. Similar build-ups were recorded in 2017 and 2024. However, those increases were largely driven by higher metal production following the ramp-up of newly built smelters (aluminium in 2017 and copper in 2024).

This year’s accumulation has occurred despite only soft, low-single-digit growth in output.

Instead, this year’s inventory accumulation appears to be driven primarily by slowing domestic demand.

The slowdown is also evident in downstream demand. Passenger vehicle sales fell by 19% amid weak end-user demand. Sales of home appliances, such as washing machines and refrigerators, which had been supported by the government’s subsidy programme over the past two years, grew by just 1% y-o-y during January-May.

As demand from key consuming sectors weakened, surplus metal flowed into SHFE warehouses.

Copper, however, has emerged as the exception. SHFE copper inventories have declined by 22,665 mt so far this year, driven by a 7% fall in China’s copper imports and a 49% increase in power grid investment. This more than offset the impact of a 51% decline in solar investment.

It is for the first time that SHFE stock accumulation has been caused by a demand slowdown, and not by output acceleration. Moreover, this has failed to trigger a stimulus announcement from the government. These, together, hint that cooling commodity consumption in the country is becoming the new normal. A growing surplus in China is likely to find its way into global markets, keeping inventories elevated, intensifying export pressure, and limiting the upside for base metal prices.

Note: This article has been published as part of a content partnership between MIC and BigMint.