China to Release Metals From Strategic Reserves for First Time in More Than a Decade

China will release copper, zinc and aluminum from its national strategic reserves for the first time in more than a decade, the National Food and Strategic Reserves Administration announced, following a run-up in prices on surging demand from the post-pandemic global economic recovery.

The plan will see 20,000 tons of copper, 30,000 tons of zinc and 50,000 tons of aluminum sold from the reserves via open competitive bidding on the electronic bidding platform at wuage.com between July 5 and July 6, the administration said in an announcement on Tuesday.

The amount of copper being released is equivalent to 2.4% of China’s average monthly production of refined copper last year, while the figures for aluminum and zinc amounted to 1% and 5.6% of average monthly production, respectively.

The move marks the first time China has released copper from the national reserves since 2005, when it released 80,000 tons. The last time it sold off aluminum was 2010 when it auctioned off 220,000 tons.　　

The benchmark copper futures contract on the Shanghai Futures Exchange rose 1.16% on Tuesday to 67,900 yuan ($10,486) per ton, while the aluminum and zinc contracts rose 1.19% and 0.23% to 18,720 yuan and 21,670 yuan, respectively.

The administration said buyers of the metals must be engaged in manufacturing and cannot resell the products, and make their operations open to inspections to verify that they are the actual users.

Analysts said the amount of copper and aluminum being released was within their expectation, while the amount of zinc was higher than expected.

Commodity prices have surged this year in China to multi-year highs, with aluminum contracts breaching the 20,000 yuan mark — a high not seen since 2008. Zinc prices are now trading at two-year highs, while copper is trading at highs not seen since 2011.

The rising commodity prices are having a spillover effect in downstream sectors that use those metals, with the China’s producer price index reaching a high not seen in more than 12 years during the month of May.

Various central government agencies have expressed concerns over the high prices, including during a May 23 dialogue on the matter co-sponsored by the National Development and Reform Commission, China’s state planner, and several other agencies. Speculation that the nation might release metals from its strategic reserves has circulated since then, causing prices to start dropping.

The National Food and Strategic Reserves Administration confirmed its intent when it announced on June 16 that it would release some non-ferrous metals from its strategic reserves in the near future. 

Contact reporter Yang Ge (geyang@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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