Singapore 17/06/2016 - Beijing has announced plans to raise its stockpiles of some non-ferrous metals but most market participants believe this will unlikely to carried out soon given the rebound in base metal prices this year.
The country plans to lifts its reserves of some nonferrous metals "appropriately" and overhaul the system of stockpiling as carried out commercially and officially.
But this has been complicated by the fact that base metals prices have come off their lows from earlier this year, a Beijing-based metals analyst pointed out.
Aluminium and zinc prices on the Shanghai Futures Exchange have both risen by around 25 and 30 percent respectively since November last year although copper has come under pressure since April - it is now up just seven percent since November - while nickel is now up 11 percent.
"The current price levels of base metals are not suitable for stockpiling, especially aluminium and zinc," she added.
And while the market is bearish on copper prices, Chinese copper smelters remain profitable given current treatment charges (TCs), she added.
Since late last year, talk had been rife that China's State Reserve Bureau (SRB) was stockpiling copper and nickel for strategic purposes and to shore up falling domestic metal prices.
In January, Beijing was reportedly providing 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 of metals including aluminium and tin.
The SRB purchased 150,000 tonnes of copper in the first quarter of this year but there has since been little talk of stockpiling either commercially or strategically in the market – largely because of improved base metal prices, market observers believe.
"All the talk about stockpiling back then was aimed at balancing the market but, now that prices are rather stable, I don't believe we will be seeing any stockpiling moves any time soon," a Shanghai-based trader said.
Some industry watchers also downplayed the announcement, noting that the language used was imprecise and that the stockpiling guideline was merely a small part of a broader and longer-term plan the government has for the Chinese non-ferrous metals industry.
"The announcement said the stockpiling will be done 'appropriately'. The wording lacked strength as opposed to something else they could have used like 'support'," the analyst said.
But it could signal worries in the market about the future prices of metals and perhaps "prepares" the market for possible stockpiling should prices deteriorate, another Shanghai-based metals analyst said.
BEIJING KEEPS ALUMINIUM IN VIEW
The State Council also listed further guidelines for the local base metals industry including controlling new capacity, phasing out uncompetitive and excess capacity and developing downstream processing - the first two are seen as particularly targeting the Chinese aluminium industry.
The Chinese central government said new aluminium capacity will only be allowed if the same amount is cut or phased out and that it wants aluminium smelters to be able to operate at above 80 percent of capacity.
The guidelines essentially encourage the phasing-out of smelters that have high costs and use outdated technology, analysts said.
In the short term, the announcement is also unlikely to dissuade restarts and the commissioning of new capacity in the Chinese aluminium market, they said.
"The central government's view is unchanged - it still does not encourage expansion in the aluminium industry. But the announcement is more of a broad guideline for the metals industry. It is not ordering or forcing companies to do anything now," a Shanghai-based aluminium analyst said.
"Local governments and companies have their own thinking and will judge from the market situation. If there is profit to be made, the idled aluminium capacity will still be restarted and new capacity will still be commissioned," he added.
Market participants expect Chinese aluminium supply to rise from late-June as more Chinese aluminium producers restart idled capacity, new capacity is commissioned and demand slows.
China's production of electrolytic aluminium was unchanged year-on-year but rose 4.3 percent month-on-month to 2.68 million tonnes in May, according to data published by the country’s National Bureau of Statistics (NBS).
(Editing by Mark Shaw)