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China to embark on $3bn metals spree

By Patti Waldmeir in Shanghai and Javier Blas in London
Monday Dec 1 2008 11:40
China said on Monday it would spend about $3bn buying 1m tonnes of base metals, from aluminium to tin, in an effort to cushion its mining and smelting industry from plummeting demand and prices.

The announcement triggered a brief rally in the base metal sector in London and Shanghai, sending tin prices up to 10 per cent higher. But later prices dropped amid traders' doubts about the plan and a new bout of gloom about prospects for the global economy.

The move suggests that China is willing to absorb excess metal production through stockpiling, stimulating domestic demand or propping up exports through rebates - in an effort to maintain output and employment levels - rather than encourage production cutbacks, Barclays Capital said.

In a statement posted on its website, China's Yunnan provincial government said it would buy 150,000 tonnes of copper, 300,000 tonnes of aluminium, 150,000 tonnes of lead, 300,000 tonnes of zinc and 100,000 tonnes of tin.

Traders were sceptical about the figures, noting that the proposed purchase of about 100,000 tonnes of tin is equivalent to more than a quarter of the world's annual tin production of about 360,000 tonnes.

Zhao Chun, a metals analyst at Merchant Securities in Shanghai, said: "Stockpiling 100,000 tons of tin is quite unbelievable, that would equal China's entire annual output".

The stockpile size is smaller for other metals, amounting to 2 per cent of China's refined aluminium production; 4 per cent for copper, 5 per cent for lead and 8 per cent for zinc, according to Barclays Capital estimates.

Alex Heath, of RBC Capital Markets, said the market was right to question the announcement as it had been bitten in the past by false or misleading information emanating from China about base metals.

"However, we would point out that with foreign exchange reserves expected to top $2,000bn by the end of this year this is some war chest", he added.

China's announcement comes after a sharp fall in base metals prices following a big drop in orders from sectors such as construction, appliances and autos.

Tong Zhiyun, deputy secretary of Yunnan provincial government, was quoted in the statement as saying that the economic crisis had caused some 600 industrial companies in Yunnan province to wholly or partially cease production.

In late afternoon trading at the London Metal Exchange, tin prices were 2.0 per cent lower at $12,200 a tonne. Copper fell 1.4 per cent to $3,608 a tonne, while aluminium dropped 2.3 per cent to $1,735 a tonne.

Beijing is not alone in considering buying metals to help its local miners and smelters. Several Russian base metals producers have also urged Moscow to buy some of their production to support the local industry.

Vladimir Strzhalkovsky, chief executive at Norilsk, the Russian metals company, said last week that Moscow was "expected" to buy metals such as nickel to support demand and prices, although he did not provide details of the possible purchase. "During tough times, the state must move toward helping business," Mr Strzhalkovsky said.

end of quote.

Guess what this will do to the price of every item with metal in it ????
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