China's National Food and Strategic Reserves Administration will continue to release metal stocks from the state reserves to ensure stability of commodity prices, according to a report released by the administration on Aug. 19.
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The move is aimed at softening cost pressure faced by small- and medium-sized downstream processors for aluminum, copper and zinc.
The response comes at a time when market was abuzz with chatters indicating there could be a temporary halt in plans to release metal stocks.
The release of state stocks will help make up the supply shortage of metals including aluminum, copper and zinc to some extent in domestic markets, market sources said.
National Development and Reform Commission said metal stocks released on July 5 and 29 have basically reached the expected outcome of lowering costs for certain processors as bidding prices under the program were seen lower than market prices.
China has released a total of 50,000 mt of copper, 140,000 mt of aluminum and 80,000 mt of zinc in the first two batches held in July.
China's plan to release metals stocks also comes at an interesting time when the country's aluminum market is going through tight situation.
The country is expected to see tightening supply of primary aluminum in the third quarter of 2021, as power shortages and efforts to lower energy consumption will continue to restrain production of smelters, while demand will pick up in the upcoming traditional peak season, sources said.
Market chatters signaled smelters in the Qinghai province were asked to prepare for using electricity judiciously amid limited power supply. Additionally, Qinghai smelters have to aim at lowering their energy consumption targets.
Meanwhile, output curbs have continued in the Inner Mongolia, Guangxi, Yunnan and Guizhou provinces.
The smelters in the provinces have been forced to temporarily halt a portion of their capacity. Questions remain over when the halted capacity will be restored, while planned installation of new capacity is also postponed further, sources said.
The disruption to production and expected increase in demand ahead of the upcoming peak season will support domestic aluminum prices, sources said.
The most-active aluminum contract for October delivery on the Shanghai Futures Exchange, or SHFE, closed at Yuan 20,110/mt ($3,103/mt) on Aug. 20, up Yuan 190/mt, or 0.7%, from the previous close. The contract has been hovering at a key resistance level of Yuan 19,000/mt since July 22, staying firm due to tight market situation.
Another key metals market in China has been facing tightening supply situation.
China's copper cathode market is seeing supply tightness now, owing to curtailed output because of power shortages, declining imports and healthier demand during a slow season, sources said.
This will keep domestic copper prices at elevated levels in the near term in the face of declining stocks, they added.
SHFE's most-active copper futures contracts for October delivery reached Yuan 67,050/mt on Aug. 20, up 0.7% from the previous close.
As of Aug. 20, copper stocks across SHFE's warehouses decreased for the second straight, to 85,575 mt, down 8% from a week earlier, taking stocks to the lowest levels since Feb. 19.