China state stockpiler buys aluminium, zinc -sources

HONG KONG: China's state stockpiler kicked off its latest buying spree on Thursday, taking 100,000 tonnes of primary aluminium and more than 10,000 tonnes of refined zinc from domestic smelters, two sources who attended the closed-door tenders in Beijing said.
Although small, China's purchases may signal the state reserves body thinks prices have hit bottom, and could boost investor sentiment towards metals, fuelling a recovery in global prices that have been dogged by slowing growth and oversupply.
Three-month aluminium on the LME is down nearly 3 percent year to date, while zinc is up 5 percent.
China's aluminium purchase was trimmed from a planned 160,000 tonnes because the state reserves body aims to hold three more tenders in a stockpiling programme it revived to help smelters reeling from sluggish demand and low prices.
Total aluminium purchases may eventually exceed the 400,000 tonnes first expected by smelters and traders, one source said.
"They said there would be a second, third and fourth tender coming," he added. "The second tender is likely to be next week at the earliest."
For the first lot of zinc ingots, the state reserves body paid around 16,000 yuan per tonne, or about 7.7 percent more than the front-month zinc contract on the Shanghai Futures Exchange, which was trading at 14,855 yuan per tonne.
The State Reserves Bureau paid around 15,730 yuan to 15,760 yuan per tonne of aluminium, or around 4 percent more than the 15,150 yuan price of the front-month aluminium contract on the Shanghai Futures Exchange. That price rose to 15,200 yuan after the purchase.
"The price is a bit low for smelters that are not located close to the state reserves bureau's warehouses," said Jing Chuan, chief researcher at Citic Futures. "The SRB may have to pay more to attract smelters to sell."
Jing estimated smelters may pay around 300 yuan per tonne to transport the metal to state warehouses, with delivery set for around the end of November to the end of December.
Spot aluminium traded between 15,070 yuan and 15,150 yuan on Thursday morning. Production costs of most aluminium smelters in China stand at around 15,000 yuan to 16,500 yuan a tonne.
The tender is the first purchase by the state reserves body since it bought 590,000 tonnes of primary aluminium from domestic smelters between December 2008 and February 2009, when demand crashed because of the global financial crisis.  It paid about 12,300 to 12,500 yuan per tonne at the time.
SUPPORTING THE ECONOMY
China racked up annual GDP growth of 7.4 percent in the third quarter of 2012, but that was its slowest pace since the depths of the financial crisis in the first quarter of 2009.
Sources told Reuters last week China's influential state planner could revive the stockpiling plan to buy around 400,000 tonnes of primary aluminium ingots and 165,000 tonnes of refined copper cathode for state reserves.
That equates to around 8 days of consumption for refined copper and nearly 7 days for primary aluminium, and compares to China's current stocks of more than one million tonnes of both copper cathode and aluminium ingots.
But analysts fear the purchase of 400,000 tonnes of aluminium may not be sufficient to turn around the domestic market, where high output has doubled commercial stocks in warehouses to more than one million tonnes.
Weak demand has hurt smelters, including the biggest, Aluminum Corp of China Ltd (Chalco) , which posted a fourth straight quarterly net loss in October, hurt by low metal prices and rising costs.
To help domestic smelters, the southwestern province of Yunnan started in September a stockpiling programme for 300,000 tonnes of industrial metals.
Since the second quarter, the provinces of Guizhou, Henan and Guangxi have also subsidised electricity to help aluminium smelters cut production costs.
China recently gave the green light to 60 infrastructure projects, including plans to build highways, ports and airport runways, worth more than $150 billion, as it looks to energise its economy. Many of the projects will be metals intensive.

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