China to release copper, aluminium and zinc reserves to stabilise commodity prices

BEIJING/HANOI: China said on Wednesday it will release national reserves of some base metals over the near term, as the world's top metals consumer tries to stabilise the price of critical commodities.

The notice came as Beijing struggles to cool its red-hot metals sector, which has seen prices surge this year fuelled by a post-pandemic economic recovery, ample global liquidity and pockets of speculative buying.

Chinese factory gate inflation shot to the highest in over 12 years in May, cutting into firms' profit margins and highlighting global price pressures at a time when policymakers are trying to revitalise COVID-hit growth.

The National Food and Strategic Reserves Administration said in a statement on its website that it will release reserves including copper, aluminium and zinc in batches for nonferrous processing and manufacturing firms via public bidding.

Both copper contracts on the Shanghai Futures Exchange and the London Metal Exchange hit record highs in May, having risen more than 60% since March last year when the pandemic hit global markets.

ShFE aluminium touched its highest since 2010 in May, while zinc jumped to its highest since 2007 in the same month.

Chinese regulators have stepped up efforts to cool commodity prices recently, saying they will closely monitor market movements.

Metal traders had been expecting some sales from the national reserves since mid-March, with a focus on aluminium.

"The Chinese authorities are trying to help support the margins at its 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 mention details of the auction process and which manufacturers will be allowed to bid.

While some metal prices have eased since mid-May amid Beijing's stepped-up signals over price controls, analysts and traders believe they won't fall much further as markets have already priced in some sales from reserves.

Moreover, demand in most economies is continuing to recover from pandemic slumps, albeit at an uneven pace.

"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.