China's State Reserves Bureau (SRB) has agreed to buy about 300,000 tonnes of aluminium at around 12,300 yuan ($1,800) per tonne in January to support producers, trading and industry sources said on Thursday. The price represents a premium of almost 10 percent over the key Shanghai aluminium futures contract, which rose 60 yuan to 11,330 yuan on Thursday, a three-week high, but still only just over half the peak reached in March this year.
The SRB will buy around half from Chalco, the listed arm of state metals firm Chinalco, and 20,000 from each of seven other smelters, the sources said. One industry source named the smelters as Shanxi Guanlu, Yunnan Aluminium, Henan Shenhuo, Qingtongxia, Huolinhe, Henan Wanji and Qinghai Qiaotou - all state-controlled smelters based in different regions of China.
The SRB met the eight firms on Thursday, one industry source familiar with the situation said. "The SRB said they're going to buy 300,000 tonnes in January. They did not say anything about further purchases," the same source said. Two industry sources put the total volume of sales at 290,000 tonnes, with Chalco providing 150,000 tonnes, and the price at 12,350 yuan rather than 12,300.
A Chalco spokeswoman declined to comment. Several sources said officials were still discussing further purchases and could target 1 million tonnes in total. Chinese officials have said they plan to buy up resources and materials to support producers, who are smarting from prices that have fallen below the cost of production.
"Aluminium prices were encouraged on the reserve purchase news," said analyst Jia Zheng at Southwest Futures. "The decided purchase volume seems to be lower than expected but we are looking forward to more movement by the reserve bureau." The SRB has already bought 30 tonnes of indium, a minor metal used in making LCD screens, from a large Chinese smelter, a trade source said last week. It also plans to buy 300,000 tonnes of zinc, a smelter official said last Friday.
China's aluminium companies, like their competitors world-wide and their peers in other base metals, have been forced to shut in some production to cope with the impact of the global economic crisis, which has crippled demand.
"The government has approved a total reserve build of 1 million tonnes. The SRB has not re-stocked for a long time because prices were so high. And I estimate the state reserve has only about 200,000 inventory of aluminium," said one analyst who declined to be named. Chalco's Shanghai-listed shares slumped in early trading and failed to recover, trading in a narrow range and ending 3.3 percent down at 6.510 yuan.
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