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China To Sell Off Reserves of Aluminum, Copper and Zinc In Order To Tame Prices

·2 min read
fanjianhua / iStock.com
fanjianhua / iStock.com

Tight commodity markets and unrelenting inflationary pressures are forcing China to let go of its copper, aluminum and zinc surpluses in order to stabilize prices.

See: JP Morgan’s Jamie Dimon Makes a $500 Billion Dollar Bet Inflation is Here to Stay
Find: What Should Americans Expect With Inflation in the Coming Months and Years?

Prices for metals have hit a 13-year high and are contributing to global fears of inflation. In an effort to help prices come off, the country is now considering selling its national reserves.

China is the world’s largest buyer of several industrial commodities, and considered one of the largest movers in the sector. Copper has increased 67% in the last 12 months and will be one of the metals targeted in the selloff. The metal is of significant importance in measuring economic health, as it is a necessity for power generation, transmission and construction. China will sell the metal along with aluminum, zinc and other essential metals by public auction to domestic metal processors and manufacturers.

Related: Prices Surge 5% as Inflation Rises with No End in Sight – May’s Consumer Price Index, By the Numbers

China’s power over metals does not necessarily mean that it will be able to tame prices, though. Prices have risen 5% in June as investors shrugged off the likelihood of a Chinese sale, the Wall Street Journal reports. In addition, the effect of Beijing’s metal auctions will depend on the amount of metals it actually releases, not necessarily the price. This is because the government does not disclose its holdings, so there is no way of knowing how warranted the prices are based off of the auction alone. Without a better understanding of true supply, the true effectiveness of the auction can only be determined by how much is sold.

China rarely sells from its state stockpiles and Wall Street is closely watching to see what, if any, difference this makes in supply.

More: How Should Your Budget Change With Increasing Inflation?
Learn: How To Invest In Foreign and International Stocks

The situation is complicated given the secrecy surrounding the actual supply and the need to keep certain levels for domestic consumption. China needs to release enough of its own reserve without depleting its national needs, but also keep the price high enough to maintain its own position within the market. Should prices largely decrease, this could cause China to constrict supply and send prices surging again.

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Last updated: June 16, 2021

This article originally appeared on GOBankingRates.com: China To Sell Off Reserves of Aluminum, Copper and Zinc In Order To Tame Prices