(The opinions expressed here are those of the author, a columnist for Reuters.)
* GRAPHIC - Copper and aluminium market balances through 2024 https://tmsnrt.rs/3d0O8ub
PERTH, June 18 (Reuters) - China is claiming some initial success in curbing commodity prices, but the modest declines in copper, aluminium and zinc underscore the scale of the challenge facing Beijing's policy mandarins.
China's economic planner, the National Development and Reform Commission, said that various measures, including the planned sale of some strategic reserves and increased market supervision, has started to cool runaway metal prices.
That is on the surface an accurate assessment, but as usual the devil is in the detail.
Global benchmark copper futures, the London Metal Exchange's three-month contract, did drop after the June 17 announcement from China's State Reserves Bureau that it would hold auctions of copper, aluminium and zinc.
London copper dropped from a close of $9,667 a tonne on June 16 to end at $9,315.50 on Thursday, a decline of 3.6%.
The London price of aluminium slipped 2.8% from its close on June 16, the day before the Chinese auction announcement, to the close on Thursday, while for zinc the drop was 3.7% over the same time period.
There are other factors that may have influenced metal prices, such as increasing market talk of rising interest rates in the United States, but on the surface it does seem fair to say that China's announcement took some of the wind out of the market's sails.
But it's also fair to say that the declines in the three targeted metals weren't overly dramatic, especially since at its heart China's announcement was effectively the world's biggest buyer of commodities saying its going to intervene physically in the market to drive down prices.
London copper remains more than double the price it fell to during the coronavirus pandemic last year, and it's also worth noting that it never climbed above $7,500 a tonne for a period stretching from mid-2013 until the end of 2020.
If the Chinese are serious about trying to lower the price to levels closer to $7,500, which is what some in the market believe is the aim, they are going to have offer massive amounts of stockpiled metal, at low prices and for a sustained period of time.
There is understandably some scepticism in the market that this is what will eventuate, once it becomes clearer how China will conduct its auctions and how much metal will be made available.
China sold copper from reserves in 2005, and it released aluminium and zinc in 2010, with the aim both times to cool what the authorities deemed were overheated markets being driven up by speculators, not fundamentals.
While the price of both aluminium and zinc did drop for a period of time in 2010, they resumed their rally by the middle of that year, recorded strong gains into 2011 and only retreated when the overall rally in commodities, sparked by the stimulus spending after the 2008 global financial crisis, came to an end.
While China may start tapering its coronavirus recovery stimulus this year, it's likely that governments across both the developed and developing world will ramp up, meaning there may well be some impetus left in the current bull price cycle for commodities.
IRON ORE EXAMPLE
The difficulty of influencing commodity prices for more than just a few sessions is also shown by China's attempts to lower the cost of iron ore, a market it completely dominates as the buyer of about 70% of global seaborne volumes.
China's efforts in iron ore were more focused on trying to make it more expensive to hold positions on domestic commodity exchanges, and also to try and use its powers of persuasion on traders and steel mills.
The moves came after the steel-making ingredient surged to a
record high, with the spot price for the benchmark 62% grade for
delivery to north China
The price did drop over the following weeks, falling 20% to $188.55 a tonne on May 27, but it has since rallied back to end at $221.40 on Thursday.
It seems Beijing did enjoy some initial success in driving iron ore prices lower, only for the market to change direction when it realised the main things driving the price, namely strong demand from Chinese steel mills and lower-than-usual exports from number two shipper Brazil, were still in place.
China's steel production hit an all-time high of 99.45 million tonnes in May, and output in the first five months of the year is up 13.9% from the same period in 2020 to 473.1 million tonnes.
With figures like that, it's probably a losing battle for China to try and force iron ore lower, with the price likely to decline only when China actually limits steel output, or supply returns to full potential, or a combination of both. (Editing by Kim Coghill)
