China SRB to purchase 290,000 tonnes of primary aluminum

Interfax China quoted an unnamed employee with Sichuan-based Aostar Aluminum Co Ltd as saying that the State Reserve Bureau will purchase an additional 290,000 tonnes of primary aluminum from various domestic smelters.

The SRB purchased its first batch of 290,000 tonnes of primary aluminum in December 2008 to support domestic producers.

The employee said this time, the SRB will purchase 140,000 tonnes of primary aluminum from the Aluminum Corporation of China Co Ltd China's largest alumina and primary aluminum producer, while the remaining 150,000 tonnes will be sourced from 10 smaller producers, including Aostar Aluminum.

The employee said the purchasing prices were nailed down through bidding among the smelters, which are higher than current domestic spot prices of between CNY 12,490 and CNY 12,500 per ton. He added that the purchase is scheduled to be completed by April 15th. The employee declined to reveal the amount the SRB will purchase from Aostar Aluminum, but said it will be limited due to the company's current low stockpiles as a result of ongoing production cutbacks.

Mr Liu Xinli, an analyst with Beijing based Umetal, believes that the SRB's second round of purchases will have little impact on domestic and international aluminum prices in the near future. He said that spurred on by recent speculation that the SRB would procure an additional 400,000 tonnes of primary aluminum, domestic and international aluminum prices have climbed slightly over the past few trading days. Since the announced amount has turned out to be smaller than expected, it is unlikely to support prices further."

Mr Liu said "As for the possible influence on international prices, the SRB purchase, compared with the more than 3 million-ton stockpile at the London Metal Exchange is too limited to make a difference to fundamentals. He said tha t as aluminum prices on the domestic market are currently higher than international prices, and the Chinese government is refraining from reinstating duties on aluminum imports, imports may continue to grow and exert pressure on domestic aluminum prices.

Mr Liu said "The domestic aluminum market still requires a recovery of the country's macro economy as well as demand for aluminum, which is expected in the second half of this year. The various forms of governmental support, including the SRB purchases, are no more than temporary measures."

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