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China makes state firms curb overseas commodities exposure

China makes state firms curb overseas commodities exposure

2 min. 16.06.2021
State-owned Assets Supervision and Administration Commission has ordered state firms to limit exposure to overseas commodities markets
Beijing financial district, China
Beijing financial district, China
Photo credit: Shutterstock

China stepped up its campaign to rein in raw materials prices by expanding its oversight of commodities trading by state firms to overseas markets, and pledging to release the nation’s reserves of base metals.

The State-owned Assets Supervision and Administration Commission has ordered state enterprises to control risks and limit their exposure to overseas commodities markets, according to people with knowledge of the matter. The companies have been asked to report their futures positions for Sasac to review, said the people, who asked not to be identified because the information is confidential.

The National Food and Strategic Reserves Administration will soon release state stockpiles of metals including copper, aluminum and zinc, the agency said in a statement Wednesday. The metals will be sold in batches to fabricators and manufacturers.

Metals traded on the London Metals Exchange fell, as did the Singapore Exchange’s iron ore contract. Chinese futures contracts were closed for their midday break when the news of the two moves to damp prices were reported.

Curb Inflation

China has accelerated its efforts in recent weeks to curb the inflationary pressures that threaten its economic recovery from the pandemic. Commodities including copper, iron ore and coal stormed to record levels last month as demand outstrips supply and the global recovery gathers pace.

That’s fanned concerns in China that factories will eventually need to pass on higher costs to consumers, hurting the economy. The role of speculation in driving up commodities prices has drawn particular scrutiny from the authorities.

China doesn’t publish information about the volumes it holds in its state reserves, but the government quietly sets aside commodities as a way of insulating from future price spikes. The material can be released in emergencies, such as previous instances of selling pork to cool inflation concerns due to a shortage of the staple meat.

It’s unclear what could have triggered Sasac’s latest order. The regulator hasn’t ruled out further measures, including those that target specific companies under its control, the people said. A fax to the regulator seeking comment didn’t receive a reply.

The government had already asked domestic firms, including steel mills, commodities merchants and brokerages, to reduce bullish bets on local futures markets for highly volatile raw materials like iron ore and coal.

The expansion of oversight overseas suggests Beijing is now seeking to exert a measure of control over the international benchmarks that influence commodities prices in China, as well as deterring speculation more generally among state-owned companies.

©2021 Bloomberg L.P.