Singapore 15/01/2016 - Beijing will provide a three-year loan of 30 billion yuan ($4.6 billion) to Chinese base metal producers at zero or very low interest rates to carry out commercial stockpiling, according to market speculation.
Of that figure, 11 billion yuan is said to have been allocated for buying one million tonnes of aluminium, sources told FastMarkets. After that volume of aluminium has been stockpiled, another one million tonnes could follow, they said.
There is speculation that aluminium stockpiling will take place from February but there are no further details like how much will be stockpiled per month and how much tonnage each of the aluminium smelter involved will contribute to the stockpile.
"The government intends to do this [commercial stockpiling] and the aluminium smelters are confident this will be carried out too. But the lack of details is probably because they have not been finalised yet," a Shandong-based metals analyst said.
While there has been no official notice from the government, most industry participants believe the commercial aluminium stockpiling is a done deal especially after six Chinese aluminium producers have set up a joint venture to that end.
Commercial stockpiling requires state support because producers neither have sufficient capital to do it nor can they borrow sufficient funds from banks while the industry is in a bearish cycle, industry participants also noted.
Starting the commercial stockpiling process with aluminium makes sense because this sector is the most loss-making off all domestic base metals production, they said.
While it is unclear how the remaining funds will be used for, market participants said other metals are likely to have a lower priority because those producers' losses are comparatively smaller.
"The price effect from stockpiling aluminium will have more effect than stockpiling other metals," a Beijing-based metals analyst said.
The stockpiling of metals other than aluminium would also advantage overseas producers, the first analyst agreed.
Speculation about the stockpiling funds reached the market on Thursday, sparking a brief rally for base metals on the Shanghai Futures Exchange. But this proved short-lived - most base metals closed lower on Friday, with the SHFE March aluminium contract ending 50 yuan lower at 10,650 yuan per tonne.
While the talk of commercial stockpiling might account for the base metals' firmer tone yesterday, the lack of follow-through today raises doubts, FastMarkets head of research William Adams said.
"But like production cuts and other noise about stockpiling, the market does not seem focused on the supply side but more on how weak demand is. Stockpiling will do nothing to help correct the supply/stock overhang - it just adds to the problem although it does 'kick the problem down the road'," he said.
(Additional reporting by Vicky Chen and Meimei Qin, editing by Mark Shaw)