China's State Reserves Bureau bought 100,000 tonnes of refined zinc on Wednesday, smelter sources said, a move that may boost domestic prices in the short run but make only a small dent on the global glut of the metal. The SRB, which builds and manages commodity reserves for the government, is expected to buy another 100,000 tonnes in April or May, the smelter sources said.
The purchase, at 11,450-11,500 yuan ($1,676-$1,684) per tonne from eight local smelters, was the second in less than two months after it spent bought 59,000 tonnes at 11,800 yuan a tonne in January. While it is equivalent to about a quarter of combined London and Shanghai exchange stocks, analysts doubted the purchase would have much long-term impact in the face of slumping demand.
"The SRB bought so much this time, about a third of China's monthly production," said Judy Zhu, commodity analyst at Standard Chartered Bank (China) Ltd. "The purchase will be positive for local prices in the short term." But she said the buy was unlikely to turn around prices on the London Metal Exchange (LME). "The LME is a global market and is moved mostly by global supply and demand.
If the SRB could affect the prices, the LME should have reflected that before the purchase," Zhu said. Smelter sources said the eight zinc smelters had been keen to sell more to the SRB at the Wednesday's meeting due to concerns over lower prices. "We sold more to the SRB this time as we are worried that prices may fall soon on the poor economy," said a source at one of the eight smelters. "Demand is not good."
The global zinc market was in surplus by 195,000 tonnes in 2008, the Lisbon-based International Lead and Zinc Study Group's (ILZSG) monthly bulletin showed. The prices were more than 9 percent higher than spot values in Shanghai on Wednesday, compared with 3.5 percent higher when it made the first purchase in January. "The average selling price was 11,497 yuan, with most smelters having sold at 11,500 yuan and one smelter at 11,450 yuan," said another smelter source.
Shanghai zinc futures were up more than 2 percent by early afternoon, at 10,345 yuan a tonne, after the SRB news. By 0610 GMT, benchmark three-month LME metal was up 1 percent from Tuesday's London close of $1,129 per tonne. The eight smelters, including Huludao Zinc Industry Co Ltd, Zhuzhou Smelter Group Co Ltd, Henan Yuguang Gold & Lead Co Ltd, Baiyin Non-ferrous, Yunnan Chihong Zinc & Germanium Co Ltd and Shenzhen Zhongjin Lingnan Nonfemet Co Ltd, are required to deliver the metal to SRB's warehouses before the end of April.
Chinese zinc prices stayed firm after the January state purchase, the first buy to help zinc smelters. But strong local prices have encouraged merchants to import spot refined zinc into the world's top producer of the metal. Imports in January surged 306 percent from a year earlier and 278 percent from December to 12,498 tonnes. "The latest SRB purchase is going to bring in more imports," a trader at an international trading house said.
He said Chinese merchants were already seeking more imports, even though premiums had risen to about $90 a tonne over cash LME prices to Shanghai, from $70 two weeks ago. The state body has been buying up metal as part of an adhoc plan to support loss-making smelters as they weather the economic downturn.
The SRB also made a second purchase of primary aluminium last Friday after having bought 290,000 tonnes at 12,350 yuan a tonne in late December. Last Friday, the state body finalised buying orders for 300,000 tonnes of aluminium ingots from eight smelters at 12,490-12,500 yuan per tonne of which Chinalco, the parent of Aluminium Corp of China Ltd, provided 125,000 tonnes, sources at the smelters said.
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