China’s move to sell metals from reserves has little impact

A move by China to release State-owned inventory of non-ferrous metals, mainly copper, aluminium and zinc, to bring down their prices in the global commodity markets seems to be having little effect.

This could even be a last-ditch move by China to rein in surging prices of non-ferrous metals, whose supplies are key to its development programmes and decarbonisation efforts.

Public bidding

On Wednesday, China’s National Food and Strategic Reserves Administration said it would release copper, aluminium and zinc stocks from its reserves in batches to processing and manufacturing firms “in the near future”. The stocks will be released through public bidding, it said on its Website.

The development follows a decision made at the State Council’s executive meeting to ensure supply and stabilising prices of bulk commodities, it said. The move also follows the China Development and Reform Commission statement last week, promising to strengthen the monitoring of commodity prices.

Shanghai Metal Exchange said that the strategic reserves administration could release copper, aluminium, and zinc stocks at the end of each month and continue the process till the year-end.

Global economic recovery

Metals such as copper, aluminium, tin, zinc and nickel have all increased this year on the global economy recovering from the Covid pandemic between six per cent (nickel) and 53 per cent (tin). However, on Wednesday, prices of these metals dropped barely by one per cent.

Though China, world largest consumer of metals, did not specify the volume of the reserves it will offload, US multinational investment bank Citigroup Inc said Beijing could sell two per cent of its annual demand in aluminium and zinc.

This could result in 770,000 tonnes of aluminium and 140,000 tonnes of zinc being auctioned to processors and manufacturers, while the release of copper could be a minimum volume. Dutch multinational investment bank ING said China could release 800,000-900,000 tonnes of aluminium.

Citigroup assessed that going by past purchase and sales record, Beijing could have two million tonnes of copper, 800,000 tonnes of aluminium and 350,000 tonnes of zinc as reserves.

‘Sales factored in’

The global market is believed to have factored in the Chinese sales from its reserves - the first such move in a decade-, going by the price trend over the past month. In 2005, China offloaded copper from its reserve in an attempt to cool prices down after a government trader hedged wrongly. In 2010, China sold aluminium and zinc reserves.

The latest move is part of initiatives that China has taken to control the spike in prices of commodities. The spike has been impacting Beijing’s export and economy. Chinese officials have tried other measures such as increasing transaction charges, changing taxation rules, slamming research reports, forcing producers to sell stocks, making trading firms to check bullish bets and promising to crack down on speculators.

Unlikely to pay dividends

Citigroup said the move was China’s efforts to crack the whip on hike in commodity prices and deter speculators rather than overcoming any physical shortage.

Dutch multinational investment bank ING said the move was Chinese authorities’ message to the market to curb the excessive run in commodities prices.

But Citigroup is of the view that China may not be able to rein in surging prices of non-ferrous metals and prices movements are solely decided on the supply-demand scenario.

Earlier, another US multinational investment firm Goldman Sachs had said that China’s efforts to control commodities price spike could be in vain.

Goldman Sachs said the price dip after China’s warning against speculation is a buying opportunity as commodities such as copper and soyabean are headed higher on tight supplies.

It said the roles have been reversed as regards China, which has turned a consumer like the US in the 2000s. Then, Chinese demand squeezed out US consumers.

China is unable to match the US with the fiscal stimulus the latter has given to its citizens, while Beijing no longer enjoys low labour charges, Goldman Sachs said, adding that the Chinese are getting “priced out”.

In India, the Chinese move has, however, resulted in NIFTY metal declining to 5,104 at 1430 hours Thursday from Tuesday’s close of 5316.93. On MCX, the MELTDEX dropped 79.77 points on Wednesday from 14,732.64 on Tuesday.

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