UPDATE 2-China's SRB buys 59,000 T of zinc; may buy more
uk.reuters.com
Wed Jan 14, 2009 10:35am GMT
By Polly Yam
HONG KONG, Jan 14 (Reuters) - China's State Reserves Bureau (SRB) bought on Wednesday 59,000 tonnes of zinc from seven state smelters, a miniscule amount given the country's capacity, analysts say, suggesting more purchases were in order.
The state body had planned to buy 100,000 tonnes but failed to receive enough bids due to its low offer price, which was just 3.5 percent higher than spot values in Shanghai on Wednesday, a trading source at one of the smelters said.
After failing to get any response to its initial price of 11,300 yuan per tonne, the SRB, which builds and manages the country's state reserves, raised the amount to 11,800 yuan ($1,726), garnering purchases from several state-owned smelters smelter sources said.
The zinc purchases come a day after Beijing showed it may have lost its appetite for cheap metal with a plan to buy copper in abeyance due to a rebound in prices. [ID:nSP348764]
So far, Beijing's buying spree has failed to set the metals market on fire as the country has sought only modest volumes, enough for restocking for emergencies rather than influencing prices.
The agreed volume was lower than an expected 100,000-200,000 tonnes because smelters considered the price too low and they were low on stocks of refined zinc, the sources said.
According to Liang Zhigang, an analyst at Minmetals StarFutures in Shenzhen, the volume may suggest the SRB would buy more zinc in coming months.
"The 59,000 tonnes is nothing to China, given the country's zinc capacity," Liang said. "The amount is just enough for about one week's consumption in China."
"That means, SRB may not have bought all it wants," he said.
China, the world's top producer of zinc, produces about 300,000 tonnes of zinc a month and consumes about 10,000 tonnes of the metal a day.
The SRB bought the zinc in a bidding round early Wednesday in Beijing from the smelters, which are allowed to deliver the metal to 13 SRB's warehouses in China and will pay transports costs.
A major sticking point was price.
"The price is too low. We do not want to sell much. We think the price will rise," a source at another smelter told Reuters.
A senior executive at one of the smelters said Zhuzhou Smelter (600961.SS) and Huludao Zinc 000751.SZ, the top two zinc plants in China, were already offering zinc at 11,800 yuan to the spot market.
All said, the state's purchases could still drive up spot prices to around 12,000 yuan soon, given that smelters were cutting production, traders said.
Reflecting more buoyant sentiment after the buying, Shanghai March zinc copper futures SZNH9 jumped 5 percent on Wednesday.
"SRB has given out the bottom price to the market," a trader in Shanghai said.
He added that steel mills were expected to increase zinc-galvanized steel production after the Lunar New Year holidays in early February, which would boost demand for zinc and drive up prices.
But Liang at Minmetals StarFutures warned the low purchase price could mean that the state body was worried about price falls in coming months.
The seven smelters are Huludao Zinc Industry Co Ltd, Zhuzhou Smelter Group Co Ltd, Henan Yuguang Gold & Lead Co Ltd (600531.SS), Baiyin Nonferrous, Yunnan Chihong Zinc & Germanium Co Ltd (600497.SS), Shenzhen Zhongjin Lingnan Nonfemet Co Ltd 000060.SZ and Hanzhong Bayi Zinc.
Zhuzhou sold just over 10,000 tonnes and Yuguang sold 6,000-7,000 tonnes.
Last month, SRB bought 290,000 tonnes of primary aluminium ingots from 8 smelters and 30 tonnes of indium from one smelter. ($1=6.8352 yuan) (Editing by Ben Tan)
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