China looks at buying metals for reserves-sources

China is looking at buying base metals as state or commercial reserves to take advantage of the lowest prices for years and bolster weak demand, industry sources said on Friday.

They said Beijing may be considering at least two proposals -- one for all base metals and another just for copper and aluminium.

But a senior executive at a large aluminium smelter said the Ministry of Industry and Information Technology had proposed the government increase state copper and aluminium reserves. He did not provide proposed tonnages or timing.

A sales manager at an aluminium smelter said he had heard that the proposal advocated the government use 20-30 billion yuan ($2.93 billion-$4.39 billion) to buy up base metals for its reserves.

If it goes ahead with purchases, the world's top consumer of copper and aluminium could end up importing more refined copper and nickel and cutting into domestic stocks of aluminium, lead, zinc and tin.

Prices of base metals have slumped since July on weakening demand, with the losses accelerating over the past few weeks due to the global economic crisis and China's own slowdown, forcing metals smelters to slow production and cut jobs.

Beijing, keen to help strengthen smelters as it looks to bolster the economy, is changing a long-established policy of restricting expansion in the resource-intensive metals industry.

The buying of aluminium reserves may have been approved by the government, which would benefit Chinalco, the parent of Aluminum Corp of China Ltd, China's top producer, industry sources said on Friday.

The government might ask state-owned investment arms to buy up to 1 million tonnes of aluminium from state-owned smelters between December and June next year in stages, a smelter source said. 

Analysts and industry sources said purchases could push up copper prices, while aluminium prices could have a short-lived rise, given the huge stocks in the domestic market and China's persistent surplus.

China's merchants and smelters, including state-owned Chinalco, held a total of more than 1 million tonnes of aluminium at warehouses and smelters' yards, about one month's output.

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