Commodities Crash – How China Releases Metal Reserves To Tackle High Prices And Shortage

Pin It

Jun 18 2021
Linked In

Since China emerged from the Coronavirus pandemic last year, the world’s second largest economic powerhouse has not looked back. Its economy grew a record 18.3% in the first quarter of 2021 compared to the same quarter last year – the biggest jump in gross domestic product (GDP) since China started keeping quarterly records in 1992.


Sure, the Chinese economy has not completely recovered from the pandemic. But it was the only major economy that grew last year, reported a 2.3% growth in 2020 from a year ago. And one of the reasons why the country’s economy has yet to shoot up is because the government has also started cracking down on debt, even before consumer spending could return to pre-pandemic levels.


It is a tricky balancing act. If the Chinese policymakers do nothing, they fear that excessive debt level would threaten the health of the economy. Debt has continued to rise largely due to easy access to business loans. However, if the government is too aggressive in containing debt levels, it could cripple the recovery in consumer consumption and struggling service sector.

Copper - China Metal Commodities

Nevertheless, the speedy economic recovery brings along two major problems – inflation and escalating commodity price. While the Chinese government could temporarily deploy “subsidies”, one of its tools in the toolbox to contain the inflation, a different tool must be used to tackle concerns over shortages and high prices of commodities, especially industrial metals.


Known as the world’s factory, China is essentially the world’s top metal consumer. Naturally, the country’s recovery from the Covid-19 pandemic also means its rapid and industry-driven sectors have pushed up the global commodity prices. It was so bad that the Factory-Gate-Prices – the price at which factory sells goods to wholesalers – have jumped to its highest since the 2008 Financial Crisis.


In May, China’s producer price index jumped 9% year-on-year, higher than analysts’ forecast of 8.5%. According to the National Bureau of Statistics, the surge was largely driven by rising manufacturing material costs, including those of non-ferrous metals, crude oil, iron ore and other bulk commodities. If China’s exports include these rising costs, it could export inflation to the world as well.

China Export Steel

Last month, the price of copper hit a record high of above US$10,500 a tonne. Shanghai aluminium touched its highest since 2010 in May, while zinc jumped to its highest since 2007. Even the prices of non-metal commodities like lumber and corn had skyrocketed to historic levels this year. To make matters worse, speculation has made the price of commodities go even higher.


But on Wednesday, all hell broke loose when Beijing finally made good on its warning last month to fight hoarding and excessive speculation. It released industrial metals from its national reserves to curb commodity prices. The National Food and Strategic Reserves Administration said it would release batches of metals, including copper, aluminium and zinc, making them available to manufacturers.


As a result, prices of commodities were dropping like a rock on Thursday. The futures prices for palladium and platinum fell more than 11% and 7% respectively. Contracts for copper plunged 4.8% while corn futures lost 6%. Even oil prices were down more than 1%. Other metals like silver, gold and even sugar, soybeans and orange juice were also affected.

China Metal Reserves

On the same day (Thursday), Beijing said it will further release its state reserves of copper, aluminium and zinc to ensure stable prices of commodities and ease cost pressure on firms. While no one knows how much China has in its reserves of industrial metals, analysts think the country could have stockpiled 2-million tonnes of copper, 700,000 tonnes of zinc and 1.5-million tonnes of aluminium.


This would be the first publicly announced release of copper from China’s state stockpiles since 2005, and the first time reserves of aluminium and zinc are being sold since 2010. However, some analysts and speculators are betting this could be just a psychology war to bring down the commodity price, without any real intention to release significant amounts of metal into the market.


But considering Beijing’s vast buying power over metals, it’s definitely a risky gamble to bet that China is bluffing. Besides, the government and the central bank have been worried for some time – even before the pandemic – that the country’s economic recovery could be jeopardized by the inflation pressure generated by the high price of commodities.

China Trade Surplus 2020 - Container Ship

The announcement that they will start to “periodically” release reserves of aluminium, copper and zinc to the market was not only tactically brilliant even in a psychological war against speculators, but was also effective in tackling soaring commodity prices, which had been a source of inflation fears. The actual amount of reserves to be released does not matter. It’s the intent that is important.


The fact that the State-owned Assets Supervision and Administration Commission (SASAC) has ordered state enterprises to control risks and limit their exposure to overseas commodities markets could only mean one thing – China has plenty of reserves to feed domestic fabricators and manufacturers without going to external markets.


Other Articles That May Interest You …

Pin It

FinanceTwitter SignOff
If you enjoyed this post, what shall you do next? Consider:

Like FinanceTwitter Tweet FinanceTwitter Subscribe Newsletter   Leave Comment Share With Others


I won’t really panic over this article.

Malaysia has experts in speculation, cornering the market with our famous Proton origami coffins on four cheap tyres, and crashing the market.

Haven’t we got experts with vast experience who had a big hand in tin speculation who splashed out enormous mountains of our money in the international markets (which means markets outside the kampongs).

I can’t remember how vast the money our wonders made, I was more concerned Islam does not condone gambling, and our experts could get their fcuking paws chopped off and they would be banned from Jennah.

We can release our stockpile of tin to “Save Malaysia” as the economic downturn will hit us hard, we can surely survive by cornering the tin market – unless nobody, especially the Chinese uncles are not interested in tin. What would be worse if they also release their stockpile of tin – that would really fcuk us up properly.

We can also release our stockpile of palm oil, I’m sure many of you are fed up of drinking palm oil five times a day – and getting serious diarrhoea.

We still have assets to flog like durians which our Chinese uncles and aunts love. We can release the durians and wreak havoc on the Chinese who are terrified of durian farts and durian burps.

There’s plenty of birds’ nests we’ve got which the Chinese are fond of and have been refusing to buy because of our already low low price. We need to sell our birds’ nests at still lower price plus two free gifts, to stave us off dire poverty. We can always send our folks to risk their lives for the country, falling off those high cliffs, or getting bitten by bats.

So I won’t panic at all over inflation, poverty, whatever the Chinese can do to shorten our lives – our gomen is already doing that with its fcuked up response to Covid, the flailing economy, our dire future.., why worry about the Chinese when our gomen can shorten and end our lives faster?

Have to say, I have to tip my hat to Ketuanan Cina, they sure have a lot of tricks to stave off everything while our ketuanan just fcuks itself, and in turn, us. Better than that, while Ketuanan Cina has recovered from Covid and faltering economy beautifully, we are still fcuking sitting ducks for Covid, crap and dangerous mismanagement of Covid, and can only half-survive to live in a buggered up economy.

Lighten up folks, while the worst is yet to cripple our country, a gig economy is picking up! I’ve never seen so many enterprising folks (poor sods…) all over Malaysia picking up and dropping off our awful food and risking their lives in our dangerous roads with our sh*t awful blind and brain-dead drivers…

Those unable to risk life and limbs on our dangerous roads should consider rummaging through the bins, pick up aluminium cans, there’s a big industry there! If anyone can, Malaysia can! But our fcuking mullahs and sh*t4brain politicians are banning alcohol and there would be a hell of a lot less aluminium cans to salvage. So it is a no-can do if we attempt to gamble on aluminium markets.

Btw, I’ve been trying out grocery deliveries by our bikes and moronic drivers, all that’s on offer are fcuking large-sized freakin’ junk food! I’ve yet to see beers or alcohol on offer, some Al Kedah operatives must have influenced our fcuking moron mullahs and ars*hole politicians to play fcuking holy munafiqs to cause max kiasu havoc while they bring country down with their trademark ketuanan and “religious” diarrhoea of gross fcuking stupidity, Alhamdulilah!

Anyway, I’m at least and at last hearing plenty of the wan favoured race cursing the gomen, bless their souls! Next, they should curse those fcuking mullahs, Alhamdulilah!

FT AWSJ Barrons CNBC just about every pundit missed the significance of this crash caused by China release of its commodity reserves. They were all too focused on J Powells ramblings and the resultant global market mini crash. The effect of what China did on Thursday will add fuel to inflation hyperinflation which is already with us. Not good news at all for emerging markets most of which are commodity driven as this will put a dent on their postpandemic recovery. Bravo to Finance Twitter for nailing it.

Leave a Reply


(required)(will not be published)