After the Chinese authorities promised to release government reserves to address concerns about shortages and high prices, industrial metals became the focus of attention.
The National Food and Strategic Reserve Administration said in a statement on Wednesday that it will release metals including copper, aluminum and zinc in batches for use by manufacturers.
This move was made after the government’s concerns about rising commodity prices, which pushed Ex-factory price Rise to the highest level since the 2008 financial crisis and may squeeze industry profits.
This marks the latest effort made by Chinese policymakers to curb commodity prices. Last month, the China Economic Planning Agency warned of “excessive speculation” and vowed to crack down on the spread and hoarding of false information.
Local media reported on Wednesday that Beijing has ordered state-owned companies to limit their exposure to overseas commodity markets.
Due to speculation that China may be preparing to release reserves, metal prices initially fell on Tuesday. On Wednesday, benchmark copper prices fell 0.2% to US$9,550 per ton, while aluminum prices fell 0.4% to US$2,458 per ton, and zinc prices fell 1.75% to US$2,978 per ton.
Metals led the widespread rebound in global commodity prices, initially boosted by China’s rapid and industrial-driven recovery from the pandemic, and rising further after other large economies began to recover. Copper used for a variety of applications from electric cars to home wiring hit a record high of more than US$10,500 per ton last month.
China has not formally disclosed its national reserves of industrial metals, which it believes is insurance against soaring prices.
Based on the difference between net supply and consumption, analysts said that Beijing could have stored 500,000 tons of copper, 1.5 million tons of aluminum, and up to 700,000 tons of zinc. However, they warned that these are just informed guesses. Judging from these figures, China consumes approximately 15 million tons of copper each year.
BMO Capital Markets analyst Colin Hamilton said that China is unlikely to release large amounts of metal into the market.
“I think this is another way to convey to the Chinese market that they believe the price should be lower,” he said. “They want the market to resolve itself.”
The government’s warning of speculation in the commodity market last month hit prices severely, causing iron ore prices to fall by 10%. In 2020, China’s steel production hit a record high, and steel mills remain active, despite environmental issues restricting production.
China’s ambitions to achieve net zero carbon emissions by 2060 will require cuts in metal production, which intensifies concerns about potential shortages and fuels price increases. The country’s role as a major metal exporter and the world’s largest consumer and producer of commodities has exacerbated these concerns.
Last month, the Chinese government issued draft regulations requiring energy-intensive projects to assess their carbon emissions.