Authorities in China have pledged to releases government reserves of industrial metals in a bid to tackle global concerns over shortages and consequent high prices.
Steelmaking furnace in a factory in China. Photo: chinahbzyg / Shutterstock
Steelmaking furnace in a factory in China. Photo: chinahbzyg / Shutterstock
China's National Food and Strategic Reserves Administration said in a statement that batches of metals such as copper, zinc and aluminium would be made available to manufacturers.
The announcement comes amid concerns in Beijing over a commodity price rally. So-called "factory-gate prices" - the price of a product available at the factory, excluding transport or delivery costs - have been pushed up to their highest levels since the financial crisis of 2008, putting a squeeze on industry profits.
The move is the latest attempt by the Chinese government to put a dampener on commodity prices. Last month, the country's economic planning agency put out a warning of "excessive speculation", vowing to tackle the spread of disinformation and hoarding.
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According to local press reports, Beijing has ordered state-owned enterprises to limit their exposure to overseas commodity markets.
The prices of metals fell earlier this week, following speculation that China was planning to release its reserves. On Wednesday, benchmark copper prices were down 0.2% at $9,550 per tonne, while aluminium was down 0.4% at $2,458 and zinc was down 1.75% at $2,978.
Metals have been at the forefront of a broad rally in global commodity prices, initially buoyed by the rapid pandemic recovery in China, and then further after by other major economies starting up again.
China's reserves of industrial metals are held as insurance against price spikes. The country does not officially declare how much is kept in stock.
Analysts estimate that Beijing could have 500,000 tonnes of copper, 1.5 million tonnes of aluminium, and 700,000 tonnes of zinc in its stockpiles. However, these are informed guesses and put into perspective, China uses around 15 million tonnes of copper per year.
BMO Capital Markets analyst Colin Hamilton told the FT that China was unlikely to release significant amounts of metal into the global market.
"I think this is another bit of rhetoric to message the Chinese market that they think prices should be lower," he said. "They will hope the market sorts itself out."
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Beijing's warning last month over commodity market speculation hit prices hard, sending the price of iron ore down by 10%. Last year, China produced record amounts of steel and the country's mills remained active despite a push to limit output due to concerns about the environmental impact.
China's stated ambition of reaching net-zero carbon emission by 2060 will necessitate cuts to metal production, only adding to concerns over possible shortages, which in turn fuel price rises. The country's status as a major metals exporter, and the world's largest producer and consumer, has only made these concerns worse.
The government last month also released draft legislation requiring energy-intensive sectors to assess their carbon emissions.
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