China Said to Plan Boosting Metals Stockpiles Amid Reform

  • Measures may include trial program on commercial stockpiles
  • China to step up closure of excess metal production capacity

China plans to increase its stockpiles of base metals, via both state and commercial reserves, as it seeks to balance supply and demand amid a commodities glut, according to two people with knowledge of the matter.

The plan includes studying a trial program for companies to build reserves in addition to their inventories, the people said, declining to be named because the information is confidential. China already holds stockpiles of metals though the State Reserve Bureau. The people didn’t give a timeline on when any new initiatives might be implemented or how they would be financed.

Commodity prices have collapsed since 2011 as mounting supply meets lackluster demand in China, the world’s top consumer, which is facing its slowest growth in decades as it shifts from a capital intensive to a consumption-led economy. Domestic smelters late last year pledged to cut output after metal prices fell to the lowest in six years.

“Building stockpiles will take out supplies from the market, which will definitely support prices,” Jia Zheng, a metals trader with Soochow Futures Co., said by phone from Shanghai. “It may require prices to be a bit lower than now before the government takes action. It might be more feasible for smelters to build commercial reserves given lower costs on shorter storage periods.” 

Other Measures

Copper led base metals higher on the London Metal Exchange, rising as much as 3.3 percent, while nickel added 2.4 percent and zinc 1.5 percent.

Other measures under consideration include accelerating reforms that would cut taxes for domestic miners, and adjusting trade policies to support exports of refined metals derived from imported ore, like copper and tin, the people said.

The China Nonferrous Metals Industry Association, a government-backed group, reported on the plan on its website, citing a State Council document. The State Council’s press office didn’t immediately respond to a fax seeking comment on the measures. Calls to Li Pumin, Beijing-based spokesman at the National Development and Reform Commission, the country’s top economic planner, went unanswered.

The plan also reiterates the broader goals of China’s so-called supply-side reforms, including limits on new industrial capacity and stepping up the closure of excess capacity.

China’s fading infrastructure boom has left it saddled with too much capacity after decades of rapid growth. The nation’s steel industry, in particular, has drawn fire from competitors for exporting its surplus too cheaply, stoking trade tensions and hammering profits globally.

— With assistance by Winnie Zhu, Alfred Cang, and Steven Yang

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