Just the facts, ma’am, about the alleged collapse China’s demand for commodities and on what the Chinese are really cutting back.

China isn’t the least bit afraid of strategic stockpiling. Russia also does this on a smaller scale. China has financial and credit problems for sure, problems that somebody will have to eat. But its best option given its challenges is to take advantage of the Kmart-style Blue Light Special on commodities that in due course will be inevitably used. The Chinese State values metals in a warehouse or oil in storage much higher than digital IOUs from bankrupt western powers like the U.S. Strategic stockpiling is completely different from synthetic or speculative activities.

Facts and data prove China’s plan is in action: It imported a near-record amount of commodities in December. Now, prices are even lower.

The Chinese Customs Authority reports 530,000 metric tons of unwrought copper and products were imported in December — an increase of 26% year over year and the second-highest monthly figure on record.

China’s crude imports last month were equivalent to 7.85 million barrels a day, a new record.

Its strategic petroleum reserves (SPR) are gearing up to hold around 600 million barrels. It has accumulated about 200 million barrels of crude in its reserve so far, according to the International Energy Agency. The big oil-import raid witnessed in December is about 15 million extra barrels more than basic consumption, minus domestic production. China has plenty of room to store oil and look for it to take Iran’s extra oil and for oil imports to accelerate. 

Numbers are hard to come by in rarer metals, like platinum and palladium, but intuition suggests China is taking everything Russia doesn’t need.

China has a number of ways to stockpile gold, including through the People’s Bank of China, it’s sovereign funds and its banks. It’s obvious, and I’ve detailed on WinterActionables China’s (and Russia’s) aggressive and opportunistic scarf of gold bullion.

Regarding base metals, Keith Goode, the managing director and founder of Eagle Research Advisory, a consulting and research analysis firm in Sydney, put it this way: “China stockpiles the metal or concentrates for future use. It knows it will use the stockpiles eventually. The stockpiles simply become low-cost, relatively cheap sources of mined ore.” He says China’s time frames “reflected in its five-year plans, are completely different than everyone else’s,” and that’s “something that people in the rest of the world just can’t wrap their heads around.”

The metals will be employed  in the “One Belt, One Road” (OBOR) project. OBOR involves building at least 81,000 km of rail networks in Eurasia, not to mention thousands of kilometres of roads and other infrastructure.

Unlike the run amok price discovery destroying western speculative community, China sees dollars and American securities as something to dump. China dumped $510 billion of foreign exchange reserves in 2015, drawing them down to a three-year low of $3.33 trillion.

According to estimates by Bank of America and Merrill Lynch, that $510 billion of sales included $292 billion of U.S. Treasuries, $92 billion of U.S. stocks, $3 billion of U.S. agency debt and $170 billion of non-U.S. paper.

China has still more to work off for its commodity stockpiling raid: $1.29 trillion of Treasuries, $212 billion of U.S. agency debt, $415 billion of U.S. corporate bonds, $266 billion of stocks and $1.15 trillion of non-U.S. assets (mostly short-dated euro-denominated bonds).

According to the latest Fed data, another $46.5 billion in Treasurys held in custody was sold in the first two weeks ended January 13. No doubt a good portion of that is Chinese and Russian.