China Yunnan province to buy metals to help firms
By Polly Yam
HONG KONG (Reuters) - A Chinese province surprised metals markets on Monday with a seemingly huge plan to buy up 1 million tonnes of base metals to support local smelters.
But the impact was diluted after a local official said it also included ores, primary metals and semi-finished products.
Under the plan, detailed on the Ministry of Land and Resources Web site (www.mir.gov.cn), Yunnan province, a major base metals producing region in southwest China, would buy up metals, including 100,000 tonnes of tin, and hold them for a year.
But that figure represents around one quarter of global annual tin production, prompting sceptical responses which swiftly deflated an initial 10 percent bounce in tin prices MSN3 on the London Metals Exchange.
"The purchases include ores, primary metals and semi-finished products," an official at Yunnan's Economic Committee told Reuters on Monday. "The government is going to do it," the official said.
She added details of the plan had not been finalised and the provincial government had not issued a document.
The Web site said the plan also targets buying 150,000 tonnes for copper, 300,000 tonnes for aluminium, 150,000 tonnes for lead and 300,000 tonnes for zinc.
Analysts had earlier said that if Yunnan only bought primary metals, it would cost nearly $3 billion overall and about $1.3 billion for the tin alone, at Monday's prices, so including ores and semi-finished products padded out the volumes and made it more realistic.
"If that figure includes the gross weight of Yunnan tin ore, which is less than 1 percent metal, then it would be much easier to get to 100,0000 tonnes the Web site talks about," said Peter Kettle, analyst at UK-based consultancy, ITRI.
"If it's a mix of metal products, ore and metal, the tin content could range from as little as 1,000 tonnes. If I had to guess, we could be talking of up to 10,000 tonnes of tin content."
That would be equivalent to just under a month's Chinese tin demand, enough to comfort the market.
"The tin market is always worried that China will start exporting again, something it hasn't done in more than a year. This should provide reassurance that this is unlikely to happen."
BIG SMELTERS TO BENEFIT
Yunnan's scheme, reflecting a central government drive to support Chinese industry by buying up resources, is still expected to benefit big smelters in the province.
Yunnan houses Yunnan Copper (000878.SZ), Yunnan Aluminium (000807.SZ), Yunnan Tin (000960.SZ), Luoping Zinc 002114.SZ and Chihong Zinc (600497.SS).
Base metals shares were cheered by the Yunnan plan, with Jiangxi Copper (600362.SS), the country's top copper producer, up 7.88 percent in Shanghai and 8 percent in Hong Kong (0358.HK). Chalco, the top aluminium producer, rose 4.5 percent in Hong Kong (2600.HK) and 2.5 percent in Shanghai (601600.SS).
A report posted on the Yunnan e-government website (www.yn.gov.cn) dated Nov 26 said the global financial crisis had caused base metal prices to fall sharply, adding pressure to smelters in Yunnan and forcing them to cut production.
The Yunnan report said the provincial government also encouraged firms to buy reserves of iron ore and copper concentrates at low prices.
An industry source in Yunnan said the provincial government might ask banks to fund the plan.
"The government may not be getting the money out from its pocket," the source said.
He added the government did not want producers to cut production as the cuts were reducing consumption of electricity and cutting jobs. The cuts could also make the provincial government fail to achieve its gross domestic products target this year.
Beijing is also looking at buying base metals as state or commercial reserves to take advantage of the lowest prices for years and bolster weak demand, industry sources have said. [nHKG166943]
Other provinces could follow Yunnan's lead.
"Yunnan are not as big in aluminium as they are in other metals so you might see other provinces make similar announcements in aluminium given the rapid collapse in demand," said Barclays Capital analyst Gayle Berry.
Tin leapt 9.8 percent on Monday to $13,500 a tonne on the London Metal Exchange after the news of Yunnan's purchase plan. But it later trickled back to $12,400. [nSP367448]
To see historical tin prices, click on:
(Additional reporting by Nick Trevethan in Singapore; Editing by Jon Loades-Carter)
