Why China-led price rally could be nearing its end

Despite the sharp drop in shipments,Chinese raw materials buyers have tapped a surge in bank loans to capitalise on low commodity prices and low shipping fees,analysts said.

But the buying is likely to slow,they warned.

8216;China has been stockpiling commodities since the fourth quarter when prices became really cheap,8217; said Yang Yijun,a commodities analyst at Wellxin Consulting based in the southwestern city of Chengdu.

8216;But large scale buying is gradually coming to an end. Chinas reserves are almost at full capacity.8217; Macquarie Bank warned in a research note last week that 8216;the key concern centres around the scale of Chinese buying8217;. Over the past three months,as the volume of Chinas purchases increased,the Standard amp; Poors GSCI,an index of global commodity prices,shot up 26.5 per cent.

However,overall prices remain lower than before the financial crisis struck. Even with those gains,the overall index is down 58.5 per cent from a year ago. Crude oil prices have risen 39.6 per cent in the past three months while copper prices climbed 45 per cent,according to the GSCI. Chinas State Reserve Bureau has been stockpiling,but so too have producers,distributors and other speculators hoping to profit from an expected rise in prices once the world economy starts to recover.

The China Iron and Steel Association began investigating surging imports after the amount of iron ore coming into the country jumped 33 per cent year on year in April,hitting a monthly record of 57 million tonnes,state media said.