(Repeats story issued earlier with no changes to text)

* GRAPHIC – Copper and aluminium market balances through
2024 https://tmsnrt.rs/3d0O8ub

By Clyde Russell

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 <MT-IO-QIN62=ARG>, as assessed by
commodity price reporting agency Argus, reaching a record high
of $235.55 on May 12.

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)