With factory gate inflation rising at its fastest annual pace in over 12 years last month – due in the main to sky-high commodity prices – Beijing has decided it’s time to act and offer some of its supplies to stabilise the market
China is to share some of its national reserves of copper, aluminium and zinc in a bid to keep a lid on soaring commodities prices.
Beijing announced the plans on Wednesday 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 revealed on its website that it would release copper, aluminium and zinc in batches to nonferrous processing and manufacturing firms “in the near future” via public auction.
Citi estimates China’s state reserves currently stand at 2 million tonnes for copper, 800,000 tonnes for aluminium and 350,000 tonnes for zinc, based on past purchase and sales records.
The notice came as Beijing struggles to cool a surge in metal prices this year fuelled 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.
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. [MET/L]
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 aluminium 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.
“Our base case is for total volumes of … aluminium and zinc selling to be around 2% of China’s annual demand, ie, around 770,000 tonnes of aluminium 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.
- Reporting by Reuters