China Sells Zinc From Reserves at Below Market Price (Update1)

Nov. 12 (Bloomberg) -- China, the world's biggest metals consumer, sold almost all the zinc on offer from state reserves at below-market prices in the latest auctions held in an attempt to curb price gains. Shanghai futures fell by the daily limit.

The government sold 49,992.97 metric tons of 50,000 tons on offer through auctions on Nov. 9 at an average price of 19,511 yuan ($2,946) a ton, said the State Bureau of Material Reserve, which is under the National Development and Reform Commission. Shanghai. The highest price was 19,750 yuan and the lowest 19,110 yuan.

Zinc prices in Shanghai rose to the highest in nine months in October and the sales follow auctions of aluminum last week. The government has sold paper pulp, magnesium, sugar, cotton and corn from state reserves this year to ease supply shortages and curb high prices and tame inflation, which gained to the highest level in two years last month.

"A series of releases from the state reserves sent the message that the price increase of commodities are unacceptable, and the government can and is ready to take actions," Zeng Tong, an analyst at data provider Shanghai Metals Market, said before the announcement.

China's consumer price index climbed to 4.4 percent in October, the National Bureau of Statistics said Nov. 11, building the case for the central bank to add to last month's interest-rate increase.

Taming Prices

Metal for May delivery on the Shanghai Futures Exchange dropped 5 percent from the previous settlement price to 19,935 yuan a ton today. It reached 21,785 yuan on Oct. 26, the highest level since January. Zinc on the London Metal Exchange declined 3.6 percent to $2,450.50 a ton.

"Some of the metal was produced a few decades ago, so a slightly lower prices is acceptable," Wang Xiang, an analyst at Cofco Futures Co. said.

Some metals producers in China have been ordered by the local governments to suspend operations as regional government's strive to meet Beijing's energy-saving goal set for the end of 2010. Aluminum smelters have been affected the most.

Shaoguan smelter of Shenzhen Zhongjin Lingnan Nonfemet Co. has started to suspend operations since Oct. 21 after authorities found that excessive levels of thallium were discharged by the plant into a river. Zhongjin is the nation's third-largest zinc producer.

Still, "zinc smelters have not been seriously affected by the power constraint, and there is no supply shortage," Shanghai Metals' Zeng said.

The bureau will sell 34,500 tons of lead on Nov. 16.