China aluminium stockpiling likely to be funded by commercial loans

Some large aluminium smelters in China are likely to participate in a commercial stockpiling programme, which would cut the availability of the metal to support prices and increase cash to producers, industry sources said on Wednesday.

An executive at a medium-sized aluminium smelter said the volume of stockpiling had not been set and would depend on the scale of production cuts by participating smelters in the second half of 2015.

"That means a smelter can sell as much as the capacity it idled," the executive said. The timing of the financing deal was one year and could be extended, he added.

He said the buying price would be a monthly average of the front-month aluminium contract on the Shanghai Futures Exchange in the late third quarter or the fourth quarter of this year.

The first batch of stockpiling would be around 1 million tonnes of aluminium and six smelters would supply the metal, said a second source.

"The target should be between one and two million tonnes. We are working on (to sell)," said another source who is a manager at a state-owned aluminium smelter.

An official at the state-controlled metals industry body, China Nonferrous Metals Industry Association, declined to comment on the volume and price of the aluminium stockpiling. He also said earlier that the government wants to ensure the deal provides cash to help operating smelters stay open, while making sure the offer doesn't prompt smelters to reopen idled capacity.

Discussions on methods and volumes of stockpiling copper, zinc and nickel have continued over the past two weeks, and copper and nickel are likely to be bought by the state stockpiler as the two metals are classified as strategic materials, the industry sources said.

"We understand that the main plan is to stockpile base metals, including copper, nickel, aluminium and zinc, and some minor metals in different buying methods," an executive at a state-owned copper smelter said, of forms of state buying in batches and stockpiling funded by commercial loans.

The aluminium stockpiling programme is part of a bigger plan proposed late last month to Beijing by the state-controlled metals industry body and smelters as multi-year low prices hit smelters badly.

The stockpiling programme would see a stock financing programme that would be funded by commercial loans with interest to be paid fully or partly by the government, said three industry sources. It was different from an initial proposal asking the government to buy the metals stocks.