China to Stabilize Metals Prices by Releasing Reserves

Earlier last week China revealed its plans to hold an auction for industrial metals from its national reserves in an attempt to control commodity prices. The country’s National Food and Strategic Reserves Administration stated on its website that it would be releasing zinc, aluminum and copper to manufacturing and processing firms in the coming weeks.

This notice comes at a time when Beijing is struggling to control a surge in the prices of different metals that was brought about by speculative buying; the surge has affected manufacturers’ margins, adequate global liquidity and post-pandemic economic recovery.

These rising commodity prices have also prompted the fastest annual increase in the May factory’s gate prices in more than a decade, which has also affected the profit margins of different companies.

Before the government revealed these plans, speculation surrounded the potential move. A note released by Citi at the start of the week stated that while the move could be seen as the government trying to resolve shortages in materials, it also constituted the government’s efforts to clamp down on the surges in commodity prices by dissuading speculators and controlling market expectations.

Citi noted that the country’s last reported strategic stocks release was in November 2010. This release did not include copper. The government’s announcement caused most base metals to trade at significantly lower levels in the Asian markets.

In May, benchmark London copper hit $10,747.50 per ton. This is a more than 60% increase in comparison with prices from March 2020 when the onset of the coronavirus pandemic affected demand. Additionally, zinc hit its highest in more than a decade while Shanghai aluminum recorded its highest price, also in over a decade.

Anna Stablum, a commodities broker at Marex Spectron, stated that VQ authorities in China were trying to support manufacturing industries’ margins as they found it difficult to transfer costs to their end users. The administration’s statement didn’t offer details on the quantities of metals that would be auctioned or the manufacturers that would be permitted to place their bids or the auction process.

Based on past sales and purchase records, Citi gauges that the country’s state reserves presently stand at an estimated 350,000 zinc tons, 800,000 aluminum tons and 2 million copper tons. In addition, the base case for total volumes is roughly 140,000 zinc and 700,000 aluminum tons. The article reveals that copper has the least volume and that this amount makes up about 2% of China’s yearly demand.

Stability of prices is good for all metals sector players, including Asia Broadband Inc. (OTC: AABB). because it allows these companies to establish medium- to long-term plans without making too many assumptions, so the action China is taking could benefit the entire industry.

NOTE TO INVESTORS: The latest news and updates relating to Asia Broadband Inc. (OTC: AABB) are available in the company’s newsroom at https://ibn.fm/AABB

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