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Saturday 11 October 2008
Mainland Poised to Build up Copper Supply Amid Price Slide
The Chinese government may go on its first copper buying spree in years as plunging prices give it a chance to restock supplies that were depleted in 2005 during an ill-fated attempt to turn back the market’s rally. PDF
Mainland Poised to Build up Copper Supply Amid Price Slide
Reuters 11 October 2008
The Chinese government may go on its first copper buying spree in years as plunging prices give it a chance to restock supplies that were depleted in 2005 during an ill-fated attempt to turn back the market’s rally.
The State Reserves Bureau, the agency that manages the country’s copper inventories, said it could be in the market to buy 300,000 tonnes in the short term, equivalent to almost one month’s consumption in China, the world’s biggest user, a source said.
It could ultimately buy up to 700,000 tonnes, boosting stocks 50 per cent, said the source, who has commercial links to the bureau.
“Beijing has ordered the [bureau] to replenish stocks. It wants to increase copper reserves to fine-tune the market,” the source said. This could not be confirmed with any other market sources.
An official contacted on Thursday at the bureau’s administration office said any information about restocking copper reserves was a state secret and declined to comment.
But analysts agreed that copper’s 40 per cent fall from its record high in July to a 31-month low of US$5,212 a tonne on Wednesday would likely bring the bureau into the market, even though prices are still double what they were in 2002, during its last big spree.
“The [bureau] should gradually buy back the stocks it sold. The copper should be imported metal,” said Jing Chuan, a chief researcher at Great Wall Futures.
Stockpiling by the bureau might help stem a decline that has wiped 25 per cent off prices in just two weeks but would be unlikely to dispel growing gloom about future demand growth amid the worst financial crisis in generations.
Other signals also suggest the agency might be poised to re-enter the market after a gap of three years following its disastrous strategy to short the market in 2005.
The bureau said it had restructured management and facilities in the past two years to expand warehousing capacity as Beijing aims to increase strategic reserves as part of a 10-year plan to 2015.
And the state body already imported 70,000 to 80,000 tonnes of copper late last year and early this year at prices below US$6,800 a tonne.
Of those imports, about 30,000 tonnes were stored in the bureau’s warehouses in the southwestern Guangxi Autonomous Region, the source said.
The source said the bureau might want to raise total stockpiles to 2 million tonnes eventually over two to three stages, depending on prices.
He said the bureau could be interested in copper at about US$5,000, although analysts said agency officials had last year suggested that US$3,000 would be the right price.
That may be wishful thinking, as most analysts do not expect to see prices that low anytime soon as producers would be likely to slash output rather than sell copper at a loss.
In the middle of November 2005, a senior bureau official said the state body then had control of more than 1.3 million tonnes of copper stocks.
It was required to keep stocks at one million tonnes minimum but could buy and sell if stocks were above that level.
Those comments, the first disclosure of the nation’s strategic stocks, came amid news about its loss-making short position on the London Metal Exchange, forcing the bureau to sell stocks to push down prices.
At that time, he said the state body did not plan to replenish the stocks within two to three years.
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Mainland Poised to Build up Copper Supply Amid Price Slide
Reuters
11 October 2008
The Chinese government may go on its first copper buying spree in years as plunging prices give it a chance to restock supplies that were depleted in 2005 during an ill-fated attempt to turn back the market’s rally.
The State Reserves Bureau, the agency that manages the country’s copper inventories, said it could be in the market to buy 300,000 tonnes in the short term, equivalent to almost one month’s consumption in China, the world’s biggest user, a source said.
It could ultimately buy up to 700,000 tonnes, boosting stocks 50 per cent, said the source, who has commercial links to the bureau.
“Beijing has ordered the [bureau] to replenish stocks. It wants to increase copper reserves to fine-tune the market,” the source said. This could not be confirmed with any other market sources.
An official contacted on Thursday at the bureau’s administration office said any information about restocking copper reserves was a state secret and declined to comment.
But analysts agreed that copper’s 40 per cent fall from its record high in July to a 31-month low of US$5,212 a tonne on Wednesday would likely bring the bureau into the market, even though prices are still double what they were in 2002, during its last big spree.
“The [bureau] should gradually buy back the stocks it sold. The copper should be imported metal,” said Jing Chuan, a chief researcher at Great Wall Futures.
Stockpiling by the bureau might help stem a decline that has wiped 25 per cent off prices in just two weeks but would be unlikely to dispel growing gloom about future demand growth amid the worst financial crisis in generations.
Other signals also suggest the agency might be poised to re-enter the market after a gap of three years following its disastrous strategy to short the market in 2005.
The bureau said it had restructured management and facilities in the past two years to expand warehousing capacity as Beijing aims to increase strategic reserves as part of a 10-year plan to 2015.
And the state body already imported 70,000 to 80,000 tonnes of copper late last year and early this year at prices below US$6,800 a tonne.
Of those imports, about 30,000 tonnes were stored in the bureau’s warehouses in the southwestern Guangxi Autonomous Region, the source said.
The source said the bureau might want to raise total stockpiles to 2 million tonnes eventually over two to three stages, depending on prices.
He said the bureau could be interested in copper at about US$5,000, although analysts said agency officials had last year suggested that US$3,000 would be the right price.
That may be wishful thinking, as most analysts do not expect to see prices that low anytime soon as producers would be likely to slash output rather than sell copper at a loss.
In the middle of November 2005, a senior bureau official said the state body then had control of more than 1.3 million tonnes of copper stocks.
It was required to keep stocks at one million tonnes minimum but could buy and sell if stocks were above that level.
Those comments, the first disclosure of the nation’s strategic stocks, came amid news about its loss-making short position on the London Metal Exchange, forcing the bureau to sell stocks to push down prices.
At that time, he said the state body did not plan to replenish the stocks within two to three years.
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