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 .
"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.
