China to release copper, aluminium and zinc to curb soaring prices, to issue new rules on commodity price indexes

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China’s top economic planner said on Thursday it would release state reserves of non-ferrous metals to curb surging prices, while saying there is room for further increases in steel demand in the future.

One day earlier, China’s National Food and Strategic Reserves Administration said it will release reserves of copper, aluminium and zinc to non-ferrous downstream processing and manufacturing companies through public bidding, without specifying exact amounts.

China last sold copper from its state reserves in 2005 and released aluminium and zinc in 2010 to stabilise the prices.

On Wednesday, copper prices decline after being at record levels for months amid China’s strong post-pandemic industrial recovery.

“In recent months, the prices of some bulk commodities have increased sharply, and the surge has clearly deviated from the fundamentals of supply and demand, and has exceeded the reasonable range of recovery,” Meng Wei, a spokeswoman for the National Development and Reform Commission (NDRC), said on Thursday.

Meng said release state reserves, along with efforts to crack down on speculation in the metals market, was aimed at suppressing the runaway prices of raw materials.

Spike in raw material prices has been mentioned by several government departments, with the State Council, the country’s cabinet, last month pledging actions to tame the prices.

China’s producer prices soared at their fastest pace in nearly 13 years in May, according to data published last week. The rise was driven by higher commodity prices, and sparked concerns over inflation pressures and questions over how Beijing would react.

“Judging from the current situation, market speculation has started to cool down following a series of measures and the prices of some commodities such as iron ore, steel and copper have declined to varying degrees,” the NDRC said.

“We will also work with other government departments to release more state reserves in batches at appropriate times based on market conditions to increase market supply and help bring prices to return to a reasonable range.”

In addition, China will issue new rules on the management of price indexes for commodities and services, the NDRC said.

The measures, effective from Aug. 1, will standardise how price indexes are compiled and improve transparency on the release of information, it said.

Price index providers will need to be independent of direct stakeholders in the commodity and service markets covered by the index. Information about the providers and the methods used to develop and formulate the indexes will also need to be fully disclosed.

Authorities will have the right to review compliance and take disciplinary measures for non-compliance, it said.

China’s fast-growing commodity markets are served by many, mostly private index providers that sell price data on major raw materials, including grains, metals and oil products, to traders and analysts. 

Although the prices for some commodities have started to trend down, a recent survey of 7,500 trading companies by the Chinese Ministry of Commerce showed they were under significant cost pressure amid global concerns aboutinflation resulting from a strong rise in post-pandemic demand. 

“After dumping reserves, some downstream companies will be able to solve part of their aluminium demand within half a year, which will directly reduce their purchases from the spot market,” said analysts from metals research firm Antaike in a note on Wednesday.

 “The release of the state reserves is more to adjust the balance of market supply and demand within a certain period of time, rather than change the trend of aluminium prices.”

Prices for the raw material fell slightly after Thursday’s announcement, but have since rebounded, analysts said.

The NDRC said it expects steel demand to remain solid despite the government’s focus on reducing excess steel production to slow the appetite for iron ore and to meet carbon emissions targets.

“It is expected that in the future, especially before the end of the 14th five-year plan period, as economic development continues … the demand for crude steel still has room for growth,” Meng said.

China’s monthly production of crude steel in May rose by 6.6 per cent year on year to 99.450 million tonnes.