China urged to raise state aluminium reserves

An industry body representing China's metal producers has asked Beijing to buy more aluminium for state reserves to trim huge commercial stocks in the world's top market for the metal, an official said on Friday.

"We have suggested (the government) buy aluminium for the state reserves," Wen Xianjun, head of the aluminium division at the state-funded Nonferrous Metals Industry Association, told Reuters on Friday.

"The proposal would not be necessarily approved," Wen added, without providing details of what was proposed.

The State Reserve Bureau (SRB), part of state planner the National Development and Reform Commission, should be the buyer if Beijing agrees to the proposal.

The SRB, which manages strategic reserves from copper to grains, is estimated to hold between 100,000 and 200,000 tonnes of primary aluminium in stocks, less than 6 days of apparent consumption in September.

A senior executive at a large aluminium smelter said the industry body had asked the state planner to boost aluminium stocks to 1 million tonnes, enough for China's consumption for just less than one month.

If the proposal is approved, smelters, including Aluminum Corp of China Ltd, will benefit, given high stocks have weighed on prices since the summer.
But such state buying may not turn around the downward trend of aluminium prices, smelter officials and analysts said.

"It would not impact the market for long. Prices could fall further," Heng Kun, senior analyst in Shanghai at Essence Securities said.

Aluminium quoted on the Shanghai Futures Exchange slid to its weakest in more than six years on Friday, on burgeoning stocks and poor demand.

About 1 million tonnes of primary aluminium ingots, almost one month's production in China, are estimated to be sitting at private and public warehouses and smelters' yards, while aluminium inventories in London Metal Exchange's warehouses at just over 1.7 million tonnes are the highest since January 1995.

Weak demand for Chinese aluminium products both from domestic and overseas markets due to the global financial crisis have driven up stocks, despite nearly 1 million tonnes of aluminium production capacity having been shut since Oct. 23, about 6 percent of China's total.

Stocks in China are still rising, given production costs have fallen due to reduced prices of raw materials such as coal and alumina, and aluminium smelters are unwilling to expand the cuts, smelter officials have said.

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