In 2009, China raised the notion that paper money was out and hard commodities were a better store of wealth.
Prompted by the prolonged slump of the US dollar and the low yields of US Treasury bonds, until recently its main investment instruments, China set about diversifying its foreign reserves away from easily printed paper currencies and into gold and base metals.
The frantic rebuilding of stockpiles lifted metal prices to their peaks in November, with copper soaring 124 per cent from its December low, while zinc rallied 122 per cent, nickel rose 88 per cent and aluminium recovered 74 per cent from their March lows.
This year, commodity strategists are pencilling in far more subdued increases, with around 10 per cent the highest expected in the base metals, while 20 to 25 per cent is expected in iron ore prices.
Ben Westmore, commodity strategist at National Australia Bank, said that, over the short term, weaker Chinese imports would limit the rise in metals prices, while high stock levels of aluminium and nickel were expected to limit these metals relative to copper, lead and zinc.
Mark Pervan, senior commodity strategist at ANZ, points out that while metals bucked the recovering US dollar trend to remain strong, Western consumer demand to take up any slack of Chinese demand has failed to materialise so far.
Mr Westmore said that current price levels were allowing Chinese facilities that were forced to scale back or shut down production after metal prices collapsed in 2008 to now restart operations.
In November, Chinese consumption of nickel increased 21 per cent, but net imports of the metal fell 68 per cent.
This trend of marginal producers coming back online is one of the main factors suppressing the price outlook.
Royal Bank of Scotland reports that China produced 25 per cent more steel in 2009 than expected, with installed manufacturing capacity increasing from 600Mtpa to 700Mtpa in the year, and this will "stretch" the iron ore market to meet 2010 requirements.
Chinese iron ore production should increase to meet some of this demand, but RBS has raised its contract price increase from 10 to 20 per cent on the news.
Mr Westmore expects market balances to improve throughout this year and as the global economy picks up in the second half, demand from emerging economies is likely to foster metal price growth that is above long-run average levels.
Nevertheless, there are a number of economists, such as Professor Nouriel Roubini, who are warning that the US economy will dip back into recession next year, and this would likely stunt global demand for metals.
Much of the $US1.4 trillion of liquidity the US Federal Reserve pumped into the banking system in 2009 is believed to have followed Chinese base metal demand to drive prices higher. If the Fed raises the cost of money through higher interest while demand remains slack, speculative holdings could be liquidated.
China has also extended $1.47 trillion of credit to stimulate its economy, and while another $1 trillion of increased loans are possible next year, it may not support metal prices.
Merrill Lynch analysts warn that the March quarter could see a "whiplash for commodity demand".
"Commodity intensity surged in China due to a 200 per cent increase in property starts but that cannot last, easy credit caused speculative overbuying in commodities in China that now must be digested and an enormous inventory rebuild in the Western world will come to an end," they said.
Chinese GDP growth is still expected to be 8 to 10 per cent, but it will be less steel intensive, while Western industrial demand growth of 15 per cent is likely to fall back to meet end demand of 3 to 5 per cent, leading to Merrill Lynch's "whiplash".
However, Merrill Lynch expects the Australian dollar to weaken to $US84.00¢, which will limit the