China's state stockpiler bought 300,000 tonnes of aluminium and 45,000 tonnes of zinc in two closed-door tenders on Friday, smelter sources said, although the move is not expected to lift domestic prices of the metals dramatically.
China is the world's top consumer and producer of aluminium, whose domestic prices hover at nearly three-year lows, and zinc, whose prices at home stand near their lowest in four months.
But Friday's purchase is not expected to turn around China's aluminium market, which is currently oversupplied.
"We see aluminium prices staying relatively low after this purchase," said Yao Xizhi, an analyst at state-backed research firm Antaike.
"The purchase would help ease financial pressure on large state-owned smelters but it will not change the fundamentals of the aluminium market."
Warehouse stocks in four cities were at a record 1.23 million tonnes last week and stocks at warehouses monitored by the Shanghai Futures Exchange AL-STX-SGH also hit a record this week.
The State Reserves Bureau paid about 15,137 yuan ($2,400) per tonne for its primary aluminium purchases, said two sources at aluminium smelters, who have direct knowledge of the matter.
"Six smelters sold a total of 300,000 tonnes today," said a source who attended the award of the tender.
The price paid was 3.8 percent higher than the 14,580 yuan per tonne at which the front-month March contract was trading on the Shanghai Futures Exchange just after the tender ended around 0300 GMT.
The contract price rose 40 yuan in the next 30 minutes, to stand up 0.2 percent at 14,620 yuan by the session's close.
The front-month aluminium contract had dropped as low as 14,355 yuan on March 4, its lowest since mid-2010.
The state body paid a similar premium of 4 percent to the front-month contract when it bought 100,000 tonnes of aluminium last November at around 15,730 yuan to 15,760 yuan per tonne.
The purchases were aimed at helping the domestic economy, the source who attended the tender award said, since the sellers were large aluminium producers, typically large tax payers to regional governments.
"They are working on another purchase. It is not certain, for now, whether they will buy more or not," said the source, who declined to be named because of the sensitivity of the sale.
Another source at a large aluminium producer had also said a second purchase tender for aluminium could be held after Friday's event, but maybe not for the same amount.
The state body also bought 45,000 tonnes of refined zinc from 3 smelters, less than the 50,000 tonnes planned, because distant delivery points made the price unattractive, said two sources at zinc smelters that participated in the tender.
The state body paid about 15,820 to 15,880 yuan per tonne for the zinc, or about 5.2 percent to 5.6 percent over the 15,040 yuan price of the front-month March zinc contract just after the tender ended around 0700 GMT.
In November, the state body paid a higher premium of 7.7 percent over the front-month contract, when it bought 100,000 tonnes of zinc for around 15,980 to 16,010 yuan per tonne. ($1=6.2155 Chinese yuan)
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