Base Metals Rise as China’s Stockpile Release Less Than Expected

Base metals rose in London after China’s state reserves bureau said it would sell only relatively small quantities in its first disclosed release of stockpiles in more than a decade.

“The market had apparently expected a larger quantity and appears relieved, with the result that prices have actually risen again quickly,” Daniel Briesemann, an analyst at Commerzbank AG, said in an emailed note.

Copper prices climbed 2% on the London Metal Exchange, extending Tuesday’s gain after China’s reserve sales were announced. Other main base metals also rose.

Dipping into its metals reserves is probably the most tangible of China’s months-long efforts to tame surging prices for raw materials. As such, the interventions, which are expected to run through the end of the year, will be closely watched as markers of Beijing’s ability to contain the a commodities rally that’s global in nature.

Copper and aluminum were hit hard when China’s plan to sell strategic reserves first emerged, but prices found support after the National Food and Strategic Reserves Administration said Tuesday that the first batch to be auctioned off next month will include 20,000 tons of copper, 30,000 tons of zinc and 50,000 tons of aluminum.

Base Metals Rise as China’s Stockpile Release Less Than Expected

Copper for three-month delivery on the LME settled at $9,482.50 a ton as of 5:53 p.m. local time, the biggest daily increase in almost a month. Nickel jumped 1.8% and aluminum settled 0.6% higher.

With the exception of zinc, the volumes look light compared with expectations, said Wang Yue, an analyst with Shanghai East Asia Futures. China’s policy makers will probably be prepared to recalibrate future offerings in light of the muted reaction.

“Volumes for future releases will differ, based on our understanding,” Wang said. “Given the big chunk of copper reserves that the country holds, we’re very likely to see much higher volumes coming to the market when needed.”

He said investors have speculated that China is prepared to release 150,000 tons of zinc, 200,000 tons of copper and 500,000 tons of aluminum in several batches.

It was unlikely that China’s stockpiling agency would opt to shed large supplies of metals in its first publicly disclosed release since at least 2010. The quantities held in state caches are unknown and, while presumed to be vast, they are ultimately exhaustible and would need to be replenished.

Weakening Consumption

China’s moves to curb speculative demand for commodities more widely will be effective because gains have largely been driven by risk appetite rather than fundamentals, according to Bloomberg Intelligence. Glencore Plc boss Ivan Glasenberg, meanwhile, sided with those who believe Beijing’s efforts to damp metals prices will ultimately be futile as the market responds to global stimulus demand.

Beijing holds other cards: Chinese metals consumption should weaken through the coming months, and manufacturing and credit growth are slowing. Most of the world’s aluminum is produced in China and capacity is still increasing. For copper and zinc, more overseas ore is expected to arrive as the pandemic fades, alleviating any pockets of tightness in the market.

The U.S. Federal Reserve’s broadly hawkish tilt should also be supportive to the dollar, which typically weakens commodities priced in that currency.

©2021 Bloomberg L.P.

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