China to Release Metal Reserves in Effort to Tame Commodities Rally

Beckett Bronze Company was incorporated May 21, 1913 as the Delaware Brass and Aluminum Company by a group of stockholders which included John Beckett, a molder, and his son, Charles. Charles Beckett eventually bought out the other stockholders, including his father, and managed the company until his death in 1960.

China said it would begin to sell major industrial metals from state stockpiles, an effort to squelch factory-gate price increases that have hit a 13-year high and are stoking fears of global inflation.

As the world’s biggest buyer of a range of industrial commodities, China is using its market heft to try to quell the sharp rise in global metal prices over the past 12 months, including a 67% surge in copper, a bellwether for macroeconomic health. Economic stimulus measures and a broad resumption of global economic activity from pandemic lows have spurred a spree of buying in China and elsewhere.

China’s latest move targets copper, aluminum and zinc, among other metals, and outlines a program of public auctions to domestic metal processors and manufacturers, the National Food and Strategic Reserves Administration said Wednesday. Still, Beijing’s move comes as some metal prices, including copper, had already begun to decline in recent weeks, amid market sentiment that global supply levels didn’t warrant such rallies.

Beijing’s vast buying power over metals doesn’t necessarily guarantee its ability to tame global prices. London spot prices for aluminum traded largely flat on Wednesday from a month earlier, but have risen 5% from early June as investors shrugged off the likely impact of Chinese sales.

Much of the effectiveness of Beijing’s metal auctions will depend on the amount of metals it releases—or that it is able to release—into the market. The government doesn’t disclose its holdings.

The state stockpiler said in a statement that it planned to release the metals in batches “in the near future” to ensure stable supply and prices of commodities. It didn’t specify the time frame, but past such sales programs have unfolded over months.

“Investors have been cautiously monitoring the amount of stocks that are genuinely hitting the market,” commodity analysts Warren Patterson and Wenyu Yao at ING Bank said in a report. “A more important factor is the message that Chinese authorities are sending to the market, with their efforts to curb the excessive run in commodities prices.”

Top Chinese officials have increasingly sought to rein in commodity price increases. The State Council, China’s cabinet, last month said it would take steps to ensure adequate supply and stable prices for commodities.

“We need to keep prices basically stable, and pay particular attention to commodity price trends,” China’s Vice Premier Liu He said after China’s producer-price index rose 6.8% year-over-year in April.

That measure accelerated to 9% in May, topping economists’ consensus forecasts and reaching the fastest pace since September 2008. The increase comes as both producer and consumer inflation in the U.S. are rising sharply to their highest levels in more than a decade.

Individual commodities are a small part of the final price tag of consumer goods, and aren’t likely on their own to move the price significantly—but the broad rallies are stoking concern that China’s PPI could be a factor in exporting consumer price pressures abroad. Chinese exporters this year have raised prices on products such as furniture and boots. Rising prices of Chinese exports, posting the biggest increases in almost a decade in the U.S., also have been due to yuan strength against the dollar.

Analysts say the market is on the lookout for more such policy moves from Beijing.

“We can’t rule out the possibility that further price-control policies will be introduced,” Chinese commodity brokerage Huatai Futures said in a report on Wednesday. The state stockpiler didn’t respond to a call for comment.

China’s massive buying has roiled markets elsewhere across commodities globally. A run on natural gas last winter, caused by huge Chinese purchases, put parts of Japan on the verge of blackouts.

Partly weighed by China’s impending sales, London copper prices fell 4% from a week earlier to reach $9,560 a metric ton on Wednesday. The world’s second-largest economy consumes half of the world’s refined copper.

The red metal, largely viewed as a bellwether due to its versatility in industrial applications, has already fallen 9% since posting its record-high in early May. The metal’s heady rally may have overreached its demand-and-supply fundamentals, even before Beijing’s announcement on Wednesday, some analysts say.

“In the last supercycle, the copper industry was unable to keep up with China’s insatiable demand,” said Wood Mackenzie analyst Julian Kettle in a May report, referring to a broad commodity rally about a decade earlier. As copper prices overshot its fundamentals, however, producers began to substitute it with aluminum, causing copper to lose 2% a year in demand volumes earlier this decade and prices to subside, he said.

“It seems little has been learned from past experience,” Mr. Kettle said.

Analysts say it is unclear if the metal sales will sufficiently dent China’s producer price inflation surges. China’s statistics bureau has attributed the increase also to commodities not included in these latest metal auctions, such as crude oil and iron ore—over which China’s buying power has little ability to sway global prices.

“Industrial inflation pressure will likely remain and pose additional risks to economic growth,” Citigroup economists said in a note earlier this month, adding that there is no quick fix to this round of commodity-led inflation.

Write to Chuin-Wei Yap at

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