Beijing returns to global metals market (Financial Times - June...

Beijing returns to global metals market (Financial Times - June 2 2013, 6:03pm)

China’s powerful stockpiling agency has purchased base metals on the international market for the first time since prices crashed during the global financial crisis, as Beijing takes advantage of the recent price slide.

The Chinese State Reserves Bureau has bought about 30,000 tonnes of nickel, equivalent to one-sixth of the stocks in London Metal Exchange warehouses, according to two people familiar with the deal. In recent weeks it has also been making enquiries about copper, several other people with knowledge of the matter said.

The SRB is one of the most influential movers in the global metals markets. In early 2009, its buying helped put a floor under prices, setting the stage for a surge over the next two years.

But since a peak in 2011, metals prices have fallen sharply, with copper, nickel and aluminium all touching their lowest levels in years last month – in part as a result of worries about slowing growth in China.

Traders said the SRB’s purchases may be interpreted as a bullish sign that China has confidence in its future consumption.

“China has destocked to quite a large degree and prices are at a level where the SRB is buying commodities,” said one senior metals trader. “If you had bought copper every time the SRB bought copper you would have made a fortune.”

While the agency has bought other metals such as aluminium and zinc domestically in the past year as a means of supporting struggling local producers, the nickel imports marked the first time it has come to the international market since a buying spree after the 2008-09 financial crisis, traders said. The purchases were executed several months ago but have not been made public.

The price of nickel, which is used in stainless steel production, has tumbled 50 per cent since early 2011, and last month hit its lowest in nearly four years at $14,609 a tonne. Although supplies are plentiful globally, China is heavily reliant on imports of low-grade nickel ore from Indonesia, which Jakarta has threatened to ban from next year.

Copper prices have also fallen this year, although they remain at more than double their 2008 lows.

Copper, used in almost all electric wiring, is considered a strategic metal for China since the country requires the metal for its industrialisation but must import a large proportion of its needs. Some traders believe the SRB is seeking to buy as much as 200,000-300,000 tonnes of copper.

“The SRB is lurking around and asking questions,” said one trader. Another added: “This dip in prices is a dream for them.”