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19.11.2012

China aluminium and zinc tenders hint at stimulus drive

Reuters reported that China’s State Reserves Bureau has issued tenders to buy 160,000 tonnes of primary aluminium and 150,000 tonnes of zinc ingots from local smelters the first clear sign Beijing is resuming metals stockpiling.

The sources who received the tender notices said that the reserves body was set to hold the tenders on Wednesday for aluminium and on Thursday for zinc although it was not announced on the SRB website.

Last week, Reuters reported that China is expected to soon resume stockpiling of some base metals including copper and aluminium, buying them from domestic smelters hurt by weak demand.

Mr Nic Brown analyst of Natixis said that but the stockpiling could mean more than support for a desperate industry arguing it could signal Beijing is ready to push ahead with a program of more direct stimulus for the economy. It’s a hint that the stimulus measure that have been talked about so far are likely to start getting implemented.

China recently gave the green light to 60 infrastructure projects including plans to build highways, ports and airport runways worth more than USD 150 billion as it looks to energise its economy. Many of the projects will be metals intensive.

Markets have been hoping the once in a decade leadership change underway at a Communist Party congress in Beijing will open the door to more aggressive steps to support growth that is crucial to Western economies’ own recoveries.

Mr Brown said that “I think they have to start on the right foot and I would be very surprised if they allowed the economy to stagnate. Yes, the accumulation of strategic stock piles started in aluminium it’s the market that needs support but are we going to need that metal? It’s entirely possible. I think it’s a sign that you will see an improvement in demand over the next 12 to 15 months.”

Sources said last week China’s influential state planner could revive the stockpiling plan as soon as this month to buy around 400,000 tonnes of primary aluminium ingots and 165,000 tonnes of refined copper cathode for state reserves.

This volume equates to around 8 days of consumption for refined copper and nearly 7 days for primary aluminium and compares to China’s current stocks of more than one million tonnes of both copper cathode and aluminium ingots.

Source said that “We think there will be another tender after the Wednesday one. But how many tonnes the SRB will buy or smelters will sell, depends on prices referring to the prices offered by the state reserve body. We think the State Reserve Bureau will buy 160,000 tonnes first, then about 200,000 tonnes in the second tender later.

The move to resume stockpiling followed a proposal by an industry body for the state planner to buy base metals from domestic smelters hit by weak demand and battling conditions harsher than during the financial crisis of 2008 to 2009.

An industry source said that SRB is going to buy 150,000 tonnes of refined zinc ingots on Thursday. Smelters should be happy to sell. The delivery is required between November 30 and January 30 next year. Although China racked up annual GDP growth of 7.4% in the Q3 of 2012, that was its slowest pace since the depths of the financial crisis in the Q1 of 2009.

In December 2008 it said it planned to buy 1 million tonnes of aluminium, 400,000 tonnes of copper and a total of 400,000 of lead and zinc from domestic smelters over three years. But it had only bought 235,000 tonnes of copper, 590,000 tonnes of primary aluminium and 159,000 tonnes of refined zinc by the end of that round.



Source - Reuters