Beijing mulls bailout for aluminium industry

China's state stockpiler is considering buying more than 1.0 million tonnes of aluminium from local smelters, sources said, an initial sign that Beijing could agree to the first major bailout in its embattled metals industry since 2009.

News that the central government might scoop up a sizeable portion of domestic inventory in a bid to shore up struggling smelters stunned some traders, who said the strategy to increase state reserves would offer only short-term support to prices as the demand would be artificial.

Shifting metal into storage would do little to get rid of the structural overcapacity that has pushed international prices to decade lows and helped create global oversupply, the traders said. Estimates on the world glut range between 8 million and 12 million tonnes.

The potential purchase, worth over $1.5 billion at current prices, would be part of a broader plea for help by aluminium, zinc and nickel producers and state-controlled metals industry body, China Nonferrous Metals Industry Association (CNIA), earlier this week. It equates to about 40 percent of China's output in October.

The State Reserves Bureau (SRB) did not immediately respond to a request for comment.

The discussions centered on tonnage and pricing, two Chinese industry sources familiar with the possible move said.

"The amount would be bigger than the market has estimated," said an industry official who has direct knowledge of the discussions, adding that the volume could be about 1.5 million tonnes. Some market participants had expected an amount around 900,000 tonnes.

The official said the government wants to ensure the deal provides cash to help operating smelters stay open, while also making sure the offer doesn't prompt smelters to reopen idled capacity.

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