New | China Molybdenum tungsten stockpile plan seen creating a price floor at the cost of time
Company's 3b yuan stockpile plan could yield profit but it will take time, analysts say
China Molybdenum's move this month to set up a 3 billion yuan fund to build a major commercial tungsten reserve is seen by analysts as a bid to stem further price falls of the oversupplied metal and to profit from a potential price recovery.
Such a stockpile was likely to take a long time to build, they said, while adding it would help create a price floor for tungsten, a hard industrial metal used in products ranging from light bulbs, jewellery to military equipment.
"As the second-largest tungsten producer [in the world], China Molybdenum may be using this strategy to prevent prices from falling even further," Julia Ralph, commodities consultancy CRU Group's principal consultant in Hong Kong, told the South China Morning Post.
"With the billion yuan, China Molybdenum's purchase price may [average] 65,000 yuan a tonne, [a level where] very few miners would want to sell materials at the moment. However, by pursuing this strategy, [it] can draw the line for the bottom of the price."
Henan-based China Molybdenum said it would use "self-raised funds" to finance a fund of up to 3 billion yuan to buy not more than 46,000 tonnes of the metal from the market, about a third of China's total output last year.
"The board is of the view that the building up of a commercial reserve is equivalent to acquiring tungsten resources at [a] low cost … which would help strengthen the pricing power of the Chinese tungsten industry in the global market," it said in a statement to Hong Kong's bourse.
On Friday it announced it would issue short and mid-term notes totalling 4 billion yuan to repay borrowings, trade debt and bolster working capital. It had 9 billion yuan of cash at the end of last year.