Copper prices fell to their lowest level in eight weeks this week on concerns that reserves may be released from Chinese state stockpiles.
The Chinese government is said to be very concerned about soaring commodities prices in general, and the potential the high price of copper and other metals may have to dampen its economic recovery in the wake of the coronavirus catastrophe.
The thinking is that zinc and aluminium will also be released by the Chinese State Reserve Bureau over the coming months, albeit on a gradual basis.
Markets respond to news like this because at present China consumes around half of the world’s refined copper. It’s been the world’s biggest consumer of commodities per say for more than a decade, and demand from inside China can have a huge effect on price.
Earlier this year there was also speculation in the market that China might attempt to put a ceiling on the iron ore price, another key commodity fuelling ongoing growth, due to its use in steel. Quite how China might be able to manage the iron ore price is an open question, but a buyer’s strike would certainly put the wind up the world’s major mining companies for who China remains a key buyer.
As is usual for a communist government, the rhetoric around this latest move to dampen down prices weighs heavily against hoarding and speculation. There is of course a degree of truth that speculation is playing a role in the current strong commodity price environment, but speculators are riding a wave rather than creating the fundamental conditions.
China itself is creating those conditions with its insatiable desire for commodities and continuing high growth rates. And it’s noteworthy that the planned release of metals from the state reserve is the first that will have taken place since 2005, when the Chinese-related commodities boom was still only building up a head of steam.
China’s in a much more powerful position now, and its economy is much bigger. But whether it can really impose price controls on a globalised free market is an open question. As a communist country, it’s perhaps not surprising that it’s going to try. Whether it will succeed, though, is another matter.