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LAUNCESTON, Australia (Reuters) - One of the clouds hanging over iron ore prices is the elevatedlevel of Chinese stockpiles of the steel-making ingredient at atime when demand growth is easing in a slower-than-expectedeconomic climate. However, iron ore stockpiles have actually declined slightly in thepast two months, and while they have grown at a faster rate thandemand, they are still well below two month's consumption. In the past weeks there have been reports of Chinese importersdelaying or reneging on cargoes amid signs that steel demand iswaning and the traditional spring pick-up in consumption hasn'treally materialised. Although iron ore inventories have declined for the past two weeks,at 95.85 million tonnes they are about 16 percent higher than theywere this time last year, and 41 percent above levels at this timein 2010. While it's fair to say that overall Chinese iron ore demand hasrisen over the past two years, stockpile growth has substantiallyoutpaced the increase in imports. Iron ore imports grew 11 percent in 2011 from 2010, while theyactually fell 1.5 percent in 2010 from the prior year. Imports averaged 57.25 million tonnes a month in 2011, and so farin 2012 they have averaged 61.2 million tonnes. It would appear that much of the gain so far in 2012, and indeed inthe last two months of 2011 when imports were above 64 milliontonnes for November and December, has gone into buildingstockpiles, rather than toward consumption. Given that stockpiles have increased at an average 1.1 milliontonnes a month over the year to April, it seems that the higherimports in the last six months are behind the rise in stockpiles. But it's also worth noting that iron ore inventories haven'tactually increased over the past two months, in fact they havedeclined by a bit more than two million tonnes from the 98 milliontonnes at the end of March. If you look at April's import total of 57.69 million tonnes, whatcan be seen is that this level of imports didn't add anything tothe stockpiles. It will be about two weeks before we have import figures for May,but given the decline in stockpiles from March's level, it won'tsurprise if the number was also in the region of April's total. While it's always risky to draw conclusions from one, or even twomonths data, it does seem that as long as imports hold below 60million tonnes, then the stockpiles won't increase any further. If imports fall toward 55 million tonnes a month, then it wouldseem that the inventories will be drawn down fairly quickly, and itwould be uncomfortable for steel producers if stockpiles droppedmuch below one month's consumption. Of course, the above numbers assume that steel production doesn'tslump dramatically over the next few months, and while there is arisk of slower growth in output, the central case is that China'sconstruction will tread water before accelerating by the end of theyear. Moves by the government to accelerate infrastructure projects willonly serve to increase iron ore demand, but this will take monthsto arrive and the impact will probably be most felt only from thefourth quarter onwards. But the numbers also show that China's iron ore stockpile isn't themassive problem, and imports are unlikely to drop dramatically inorder to clear the overhang. China's iron ore demand was forecast to rise about 6 percent thisyear in a Reuters survey of analysts, conducted in December, toaround 730 million tonnes. That may prove optimistic given the sharper slowing in the rate ofeconomic growth in the second quarter, but even a figure of 720million tonnes means an average of 60 million tonnes a month in2012. Given the first quarter saw an average of about 62.4 million tonnesa month, it won't be surprising if the second quarter sees anaverage of around 57 million tonnes of demand. While this is a drop in iron ore demand, it isn't enough to warranta collapse in prices. Given that iron ore lacks a deep and liquid futures contract, onemay think it's less at risk than commodities such as copper andcrude oil, and more likely to trade on demand and supplyfundamentals. But iron ore may be just as vulnerable to any deterioration inmarket sentiment caused by Greece's fiscal woes or poor Chineseeconomic data. Iron ore's drop from its peak in 2011 to its trough was 39 percent,while London-traded copper dropped by almost 34 percent, the bulkof both declines being the first Greek crisis that saw marketsslump in September. So far spot iron ore is down 5.7 percent in 2012 to $130.50 atonne, while copper is actually up 1.7 percent to about $7,740 atonne. To my mind this makes iron ore closer to the bottom of its pricerange than copper, especially since Chinese inventories aren't aselevated as those for copper, and while imports may be sluggish forthe next few months, they have more scope to recover in the secondhalf. Clyde Russell is a Reuters market analyst. The views expressed arehis own.-- Thomson Reuters 2012 All rights reserved iPad Version: Picture - A worker rides a bicycle at an iron oredump site at Yingkou Port, Liaoning province: REUTERS/Sheng Li SUBSCRIBE to Mineweb.com's free daily newsletter now. 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