China's towering metal stockpiles cast economic shadow

For copper, Chinese traders appeared to have misjudged the fundamentals and embarked on a massive shopping spree in November, expecting demand to rebound after the Lunar New Year.

But the buyers never materialized in bulk and China is now left with up to 1.4 million metric tons of copper, the most since 2009. In the past month, stocks have fallen 3.5 percent, half the pace from the same period a year ago, according to data from the Shanghai Futures Exchange.

"The turnaround time for copper stocks used to be only one or two months, but now it's averaging six months or more," said Zhang, a manager at a bonded warehouse at Shanghai's Yangshan Port who would only give his surname.

"The destocking is happening very, very slowly."

The glut has already prompted some firms to sell copper into London Metals Exchange warehouses, a move which would further depress the exchange's benchmark prices.

Copper has also lost its luster as a financing tool for investors who use the metal as collateral to borrow yuan in a punt on the Chinese currency and also to invest in the property sector, which has fizzled out.

Copper has already shed 9 percent in the past two weeks to hit a four-month low of $7,625. Many traders reckon it's only a matter of time before prices test $7,500 or lower, which could spark panic selling.

Iron ore has fared little better. Steel mills are digesting stocks at an average rate of 10 percent this year compared to 20 percent over the past five years, according to BoA Merrill Lynch. Prices are 8.3 percent lower so far this quarter.

Steel futures are also down over 5 percent this year, as mills produce at record levels even though demand is weak.

Some Chinese steel mills have postponed delivery of iron ore from miners, including top supplier Vale (VALE5.SA), as a slow steel market cuts demand and producers expect a further drop in prices, sources at mills and traders said.

Slowdown,not a collapse

While a slew of disappointing April economic data from China has added to the global gloom, there are so far few indications the Beijing authorities will allow the slowdown to turn into a hard landing, or for the economy to revisit the slump of 2008.

Industrial output rose 9.3 percent in April, below the 12 percent forecast and the weakest growth in three years, while retail sales also disappointed, expanding 14.1 percent versus a forecast of 15.2 percent.

Trade figures, and commodity imports, were also weaker.

Four years ago, however, the global financial crisis triggered by the collapse of Lehman Brothers broadsided the economy: factories shut down suddenly, millions of workers got laid off, ports ground to a halt. The situation only perked up after the government introduced a $600 billion stimulus scheme.

This time around, orders are still coming in, there is a labor shortage in some industries and urban wage inflation remains a headache for employers.

Recent improvements in both the HSBC and the official Purchasing Managers' Index also suggest the worst may be over for China's vast factory sector.

The stationary cargo trains at Qingdao port, however, may be telling a different story.