China Mulls Selling Aluminum From State Reserves to Cool Prices
(Bloomberg) -- China is considering selling about 500,000 metric tons of aluminum from state reserves, according to a person with knowledge of the plan, in a move that would help cool the market and meet the Asian nation’s emissions objectives.
Aluminum prices plunged, hitting a daily decline limit in Shanghai, as traders sold futures contracts on earlier speculation of China’s plans. Releasing stockpiles of the highly carbon-intensive metal could offset production losses caused by China’s commitment to limiting energy usage as it plots its course to a carbon-neutral economy by 2060.
Calls to China’s National Food and Strategic Reserves Administration seeking comment weren’t answered.
China’s plan and its details, including the volume of aluminum to be released, are subject to change, the person said. Beijing is keen to prevent elevated prices of the industrial metal widely used in a range of goods including appliances, window frames and car parts from feeding through into inflation, according to the person.
“Price weakness on the back of this possibility presents a buying opportunity,” Citigroup analysts including Oliver Nugent said in a note. While “this may well occur, albeit most likely gradually over the next 5 years or so, it would have only a minimal impact on the aluminium market.”
Aluminum had climbed to its highest price in a decade in Shanghai earlier this month after Inner Mongolia, a major coal-fired production hub in northern China, said it’ll stop approving new projects following a reprimand from Beijing for failing to control its energy consumption.
China is by far the world’s dominant supplier of aluminum. The country’s primary aluminum output totaled 37 million tons last year, and production in the first two months of this year rose to record levels.
China previously sold aluminum from its reserves in 2010, when production cuts aimed at meeting energy-saving targets tightened supply. That same year also saw the sale of commodities from zinc to magnesium, cotton and corn to ease shortages and curb price gains.
Aluminum traded 2.3% lower to settle at $2,219.50 a metric ton at 5:59 p.m. on the London Metal Exchange. In equity markets, producer Alcoa Corp. dropped 9% while European producer Norsk Hydro ASA slumped 5.2% and Granges AB and AMG Advanced Metallurgical Group also slipped.
Other metals were mixed, with copper slipping below $9,000 a ton as the dollar climbed. Trafigura, the world’s biggest copper trader, expects the metal to hit $15,000 a ton in the coming decade as demand from global decarbonization produces a deep market deficit.
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