China Confirms 235,000 T Copper Bought; Stops for Now

HONG KONG, June 30 -- China has stopped buying metal for government stockpiles after prices surged and middlemen cashed in on an initiative meant to support domestic industry, a senior official was quoted as saying on Monday.

    Yu Dongming, an official at the metallurgical department of China's top economic planning body, the National Development and Reform Commission, also confirmed for the first time how much metal the State Reserves Bureau had amassed in recent months, including a lower-than-expected, 235,000 tonnes of copper.

    "In the current market situation, aluminium smelters have already started to make profits and non-ferrous metals prices have rebounded. It's had the expected effect and in these circumstances we don't anticipate that the country will continue to build its reserves," Caijing magazine quoted Yu as saying in its report. 

    China has been the motor of global metals markets this year, drawing record imports of copper, aluminium and nickel with a state buying campaign that sought to help local businesses by keeping prices above the breakeven level.

    Even with the figures for state buying, judging the market's needs remains tricky because many speculators have bought copper in hopes of a price rise, creating an invisible market overhang.

    One Chinese copper industry source said a fabricator client who used 1,000-2,000 tonnes of copper a month was maintaining 300 tonnes of copper inventory, compared with zero last year, due to increased bank loans and expectations of higher prices.

    Yu's comments show the state absorbed less of China's copper imports than thought. That implies a larger surplus in the market: an increase of 435,000 tonnes since the start of the year, according to Yang Changhua, copper analyst at state-owned research group Antaike.

    That would mean China used only two-thirds of the 1.4 million tonnes it imported in the first five months of this year, leaving inventories weighing on Chinese prices and reducing the need for imports in the second half of the year, Yang predicted.

    Traders have estimated another 50,000 tonnes may be poised to enter China, lying in Shanghai's bonded warehouses, where metal is stored before being declared for customs. That could quickly enter the market if demand picks up.

    MARKET FEARS SRB SALES

    But Yu's comments were broadly shrugged off by the market, since analysts said the end of China's state buying was priced in. London copper MCU 3 rose 1 percent.

    "Only if the SRB sells, will it impact the market," said Li Rong, an analyst with Great Wall Futures. 

    Apart from the purchases by the State Reserves Bureau, much of the imported metal had been chasing demand from China's 4 trillion yuan ($586 billion) state stimulus plan and a huge power investment boom. But the actual state of demand has been clouded by the collapse in China's export markets, the uncertain pace of its own recovery and a shortage of copper scrap.

    "When you are looking at copper, bear in mind that in addition to the SRB buying, the supply of copper scrap had also diminished, meaning China will have been buying cathode to compensate for the loss of scrap," said David Moore, commodities strategist at Commonwealth Bank.

    "There has probably been some private stockpiling, but some of the recent record imports may have gone into real demand -- some of the industrial productions numbers were not that bad, especially in recent months."

    The NDRC's Yu also said China had also bought 30 tonnes of indium and 5,000 tonnes of titanium, as well as aluminium and zinc, officially confirming sums widely suspected by traders.

    In remarks to a conference in Beijing, quoted by Caijing, he also confirmed the state had bought 590,000 tonnes of primary aluminium and 159,000 tonnes of refined zinc from Chinese smelters since December, purchases that were widely reported in the media but never officially acknowledged.

    Both metals are have seen record imports added to stocks in domestic market. About 500,000 tonnes of aluminium and the same level of zinc stocks may be stored in public and private warehouses in China, industry sources have estimated.

    Yu said officials had been surprised that the stockpiling campaign's biggest beneficiaries were market intermediaries, not the Chinese enterprises it was intended to support.

    (Source: Reuters)