China announced plans to release industrial metals from its
national reserves to curb commodity prices
Some analysts said it could be the first such move in a decade by
the world’s top consumer of metals.
China will release copper, aluminum and zinc in batches to
nonferrous processing and manufacturing firms “in the near future” via public
auction.
Red flags fly in front of the Great Hall of the People as the third
session of the 13th National People’s Congress (NPC) opens on May 22, 2020 in
Beijing, China.
Du Yang | China News Service | Getty Images
China announced plans on Wednesday to release industrial metals
from its national reserves to curb commodity prices in what some analysts said
could be the first such move in a decade by the world’s top consumer of metals.
The National Food and Strategic Reserves Administration said on its
website it would release copper, aluminum and zinc in batches to nonferrous
processing and manufacturing firms “in the near future” via public auction.
The notice came as Beijing struggles to cool a surge in metal
prices this year fueled by a post-pandemic economic recovery, ample global
liquidity and speculative buying that has dented manufacturers’ margins.
China’s May factory gate prices rose at their fastest annual pace
in over 12 years due to surging commodity prices, cutting into firms’ profit
margins and highlighting global price pressures.
As speculation swirled about such a move before it was confirmed by
the government, Citi said in a note on Monday that it could be part of “efforts
to crack down on commodity price hikes by managing market expectations and
deterring speculators, more than resolving any material physical shortages.”
Citi said the last reported strategic stocks release in China -
which did not include copper - was in November 2010. State research house
Antaike made parallels between the announcement and the release in 2010.
Most base metals were trading sharply lower in the Asian afternoon
session on Wednesday.
Benchmark London copper hit a record high of $10,747.50 a tonne in
May, having risen more than 60% since March last year when the coronavirus
destroyed demand. Shanghai aluminum touched its highest since 2010 in May,
while zinc jumped to its highest since 2007.
“The Chinese authorities are trying to help support the margins at
(their) manufacturing industry as they have found it hard to transfer these
costs to the end-users,” said commodities broker Anna Stablum at Marex
Spectron.
The statement by the administration did not provide details on
quantities of metal to be sold, the auction process or which manufacturers will
be allowed to bid.
Citi estimates China’s state reserves currently stand at 2 million
tonnes for copper, 800,000 tonnes for aluminum and 350,000 tonnes for zinc,
based on past purchase and sales records.
“Our base case is for total volumes of ... aluminum and zinc
selling to be around 2% of China’s annual demand, i.e. around 770,000 tonnes of
aluminum and 140,000 tonnes of zinc, and for copper volumes to be minimal,” it
added.
Analysts and traders believe metals markets have already priced in
some sales from China’s reserves.
“However, we still don’t have any information about size of these
sales and it will definitely continue to weigh on these markets,” Stablum
added.
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