China reliance a risk for commodities

By James Regan and Joseph Chaney

KALGOORLIE, Australia (Reuters) - China may have overstocked on commodities, risking a slowdown in buying and a correction in prices in the second half of this year, top economist Nouriel Roubini said on Monday, also reiterating that the global recession would continue until year-end.

Roubini, a New York University professor and one of the few economists who predicted the magnitude of the financial crisis, said he expected most commodity prices to continue a gradual recovery in step with rising general economic growth.

"The recession will continue to the end of the year," Roubini said at the Diggers and Dealers mining conference in Western Australia. But he added: "As the global economy moves towards growth as opposed to a recession, you are going to see further increases in commodity prices, especially next year."

Still, he warned there was still a risk of a second slump.

"In the short term there has been a massive stockpiling of commodities by China," he said. "My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of their own economy."

China went on a buying spree after the global collapse in demand for oil, metals and other industrial staples, bulking up its domestic government inventories and snatching up overseas assets from Australia to Africa to Canada to safeguard growth.

A state-owned Chinese firm bought most of the assets of one of Australia's largest mining companies, OZ Minerals (OZL.AX), in a $1.4 billion deal earlier this year.

Another, Chinalco, came close in a failed bid to double its stake in global miner Rio Tinto (RIO.L) (RIO.AX), after Rio struck a separate deal with fellow Anglo-Australian miner BHP Billiton (BHP.AX)(BLT.L).