The record intake of metals by China risks oversupply and could actually slow the pace of any recovery in demand, warned analysts, adding that the large scale of iron ore imports could create a stockpile that would further drag down steel prices, already under siege after a small rally early this year.

China imported record amounts of iron ore and copper in March, even as underlying economic activity remained soft.

Imports of copper, copper alloy and semi-finished copper products also rose 56 per cent year on year to 374,957 metric tonnes, surpassing February's record 329,311 tonnes, China's customs agency said.

There are reports that the world's biggest copper producer, Chile, has completely sold its next three months' output to Chinese buyers.

Chinese steel mills also shipped in 52.1 million tonnes of iron ore, up 46 per cent on year, even though their steel production in the first two months of the year hasn't risen at the same pace as these raw material imports.

"A big upturn in demand is unlikely this year," said a steel analyst. "The recovery is not mature yet, though there are signs of demand stabilising."

The high ore import volumes do not correspond with the actual production of steel, which was up just 2.4 per cent in the first two months of this year, he pointed out.

The massive purchase of commodities by Chinese industry was driven by increased credit by banks.

Official figures show China's banks lent slightly more in the first three months of this year (equivalent to almost $1 trillion) than they did in all of last year. China's demand for Australia's iron ore lifted exports there to a record $3.7 billion in February.

Similarly, the gain in copper imports, continuing a growth streak begun in December, seems to be driven more by government stockpiling than underlying demand for the metal, analysts said.

They say that consumption might be recovering somewhat, but these import numbers would be too high on the basis of the extent of the recovery to date.

The surge in China's imports so far this year may even end up work against its interests later on. The fact that steel mills are ordering aggressively anyway highlights the limited extent to which the China Iron and Steel Association can control the highly fragmented industry.

Analysts cautioned that the boom in iron ore purchases might not last, with Chinese steel mills cutting back their orders for April. Spot iron ore prices have fallen by almost 20 per cent in the past six weeks.

 According to one  China analyst, government projects accounted for most of the recent economic improvement. Improved housing construction was the result of government-funded low-cost apartments, while improvements to the electricity grid were driving copper demand.

The government investment and easy credit is offsetting the downturn in world trade, which is affecting China's exporters as much as anyone else.

Almost all sectors of the Chinese economy appear to have bottomed out since the export shock and construction slump of late last year. Most of the new activity appears to flow directly from the Government's all-out fiscal and monetary stimulus effort.

 The OECD  fogures also point that the picture for all countries remains weak, with the outlook in the US, Canada, Japan and the major non-OECD member economies in particular further deteriorating since last month.

OECD's downgrading of China's prospects over the past year has been greater than any of the other big world economies except for Germany and Russia.

China to merge four steel mills
Meanwhile, the China Business News reported on Monday that China's northern city of Tianjin plans to merge its four state-owned steel mills into a group with annual capacity of about 23 million tonnes.

China is eager to consolidate its fragmented steel sector, partly in order to bolster their bargaining position on iron ore supplies from top miners BHP Billiton, Rio Tinto and Brazil's Vale.

The country has urged steel mills to consolidate so that the top five mills jointly account for more than 45 per cent of the nation's total capacity, while facilities located in coastal areas account for more than 40 per cent of the country's capacity.

The four companies are Tianjin Tiantie Metallurgical Group, Tianjin Tiangang Steel Group, Tianjin Steel Pipe Group and Tianjin Metallurgical Group (Holdings) Ltd.

The state-owned parent of Tangshan Iron and Steel Co merged last year with two smaller rivals to become the country's second-biggest steel mill, Hebei Iron and Steel Group. It now ranks among the world's top five steel producers.