China pledges to release its mineral reserves to address price and shortage concerns

Industrial metals are in the spotlight after Chinese authorities pledged to release government reserves to address concerns about shortages and rising prices.

The National Food and Strategic Reserves Administration said in a statement Wednesday that it will release batches of metals, including copper, aluminum and zinc, making them available to manufacturers.

The move comes after the government’s concerns about rising commodity prices, which prompted Factory gate prices to their highest levels since the 2008 financial crisis and threatened to squeeze industry profits.

It represents the latest effort by Chinese policy makers to lower commodity prices. Last month, China’s Economic Planning Agency warned against “excessive speculation” and vowed to tackle the spread of false information and hoarding.

On Wednesday, local press reports said Beijing has ordered state-owned enterprises to limit their exposure to overseas commodity markets.

Metal prices initially fell on Tuesday, after speculation that China might be preparing to release its reserves. On Wednesday, benchmark copper prices were down 0.2 percent at $9,550 a ton, while aluminum was down 0.4 percent at $2,458 and zinc was down 1.75 percent at $2,978.

Metals led a broad-based rally in global commodity prices, initially supported by China’s rapid recovery from the epidemic, and the fires flared further after other major economies began to recover. Copper, used in everything from electric cars to home wiring, hit a record high of over $10,500 a ton last month.

China does not officially disclose its government reserves of industrial minerals, which it considers as insurance against price increases.

Based on the difference between net supply and consumption, analysts said Beijing could store 500,000 tons of copper, 1.5 million aluminum and up to 700,000 zinc. However, they cautioned that these were merely informed guesses. To put these numbers into perspective, China consumes about 15 million tons of copper annually.

Colin Hamilton, an analyst at BMO Capital Markets, said it was unlikely that China would release significant amounts of the metal into the market.

“I think this is another kind of rhetoric to tell the Chinese market that they think prices should go down,” he said. “They’re hoping the market will sort itself out.”

The government’s warning last month about speculation in commodity markets weighed heavily on prices, sending the price of iron ore down by 10 percent. In 2020, China produced record volumes of steel and plants remained active, despite pressure to limit production due to environmental concerns.

China’s ambition to achieve net zero carbon emissions by 2060 will require cuts in mineral production, raising concerns about potential shortages and helping drive up prices. The country’s role as a major exporter of minerals, as well as the world’s largest consumer and producer of commodities, has heightened these concerns.

Last month, the Chinese government released a draft regulation requiring energy-intensive projects to assess carbon emissions.

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