Yunnan Unveils Economic Stimulus Package to Purchase and Store 300,000 Tons of Major Metals

In the face of the economic slump, China recently rolled out a host of measures to stimulate the economy. Yunnan Province also adopted an economic stimulus package.

This time, Yunnan Province introduced a purchasing and storage plan covering the nonferrous, chemical fertilizers, coke and steel industries, involving a number of listed companies. Meanwhile, it unveiled the preferential tariff policy. Electricity direct-purchase policy towards large enterprises was put forward again.

Four years after 2008, Yunnan Province strives to save the local economy through a purchase and storage package again. This time, the scope of purchase and storage is far broader than that of last time. Not only does it include nonferrous metals like copper, aluminum and zinc,it covers steel and coke as well. The provincial government and local governments take part in the purchase and storage package, which involves a number of listed companies in Yunnan.

According to Shang Wei, chief of the Economic Operation Division of Yunnan Provincial Industry and Information Technology Commission, this time nonferrous metals purchased and stored by the government include major metals and minor metals; major metals include copper, zinc and aluminum while minor metals include germanium and indium. The province plans to purchase and store 300,000 tons of major metals, including 200,000 tons of aluminum, 20,000 tons of copper, and 50,000 tons of zinc.

Shang told the reporter that the purchase and storage policy would take effect in September and remain effective until the end of this year.So far, the purchase and storage plan has been issued to the enterprises. Nonetheless, in fact,the purchase and storage plan took effect before the policy was introduced. So the plan can be traced to July 1 and it lasts six months.

According to Shang, aluminum is purchased mainly from Yunnan Aluminium Co., Ltd.(000807), copper mainly from Yunnan Copper Co., Ltd. (000878), and zinc mainly from Chihong Zinc and Germanium (600497), Luoping Zinc & Electricity (002114) and Xiangyun Feilong. Germanium is purchased mainly from Yunnan Germanium (002428) and Chihong Zinc and Germanium. Moreover, Yunnan Province plans to purchase and store 600,000 tons of chemical fertilizers, mainly from Yunnan Yuntianhua Co., Ltd. (600096) and Yunnan Xiangfeng Chemical Fertilizer Co., Ltd.

Such is just the purchase and storage plan publicized by Yunnan Provincial Government. Local governments also started to introduce supporting policies. According to Chief Wang of the Industry Policy Division of Qujing Industry& Information Technology Commission of Yunnan Province, Qujing Municipal Government decided to purchase and store 400,000 tons of coke, 200,000 tons of pig iron, and 50,000 tons of steel. “The government is also soliciting opinions from enterprises. A prenotice has been issued to enterprises, requiring them to report purchase and storage plans. The policy has not been carried out yet.” Coke is purchased from Yunnan Yunwei Co., Ltd.(600725) and Yunnan Coal & Energy Co., Ltd.(600792).

Chief Wang noted that the policy was introduced with the aim of stabilizing economic growth in line with the gist of the file issued by the provincial government.

“In fact, the plan for purchasing and storing 400,000 tons of coke is significant,” said Chief Wang, “Currently, Qujing has coke inventory of 500,000 tons. Part of the inventory does not accord with industry policy. The purchase and storage plan does not cover backward production capacity.” At present, the average price of coke is 1,400 yuan/ton. The purchase and storage plan is expected to produce 560 million yuan of working capital for local enterprises.“The government is likely to pay 16 million yuan of interest.”

This time, metals are purchased at market prices. The method of government purchases and stores metals is that in 2008. That is, enterprises apply for loans from banks with their inventory as collateral, and the government repays interest on the loans. As for the gains from the markup of products purchased and stored by the government and loss from the markdown, Shang Wei, chief of the Economic Operation Division of Yunnan Provincial Industry and Information Technology Commission, notes that enterprises are entitled to the gains and bear risks. Products will be returned to enterprises when the purchase and storage period is over. In a strict sense, the policy amounts to discounting interest on loans extended to enterprises.

“In doing so, the government wants to boost enterprises’ confidence and prevent them from stopping production,” said Shang.

The greater significance of the policy lies in that, by paying the interest, Yunnan Provincial Government wants to give an impetus to enterprises that are caught in a plight in production or enterprises which are operating at a loss and to address their lukewarm enthusiasm for production.

Apart from the purchase and storage package,Yunnan Provincial Industry and Information Technology Commission attempts to encourage enterprises to promote sales. Sales incentive policy has been introduced for enterprises in the province. “Selling one automobile carries a bonus of 1,000 yuan, selling one internal combustion engine carries a bonus of 200 yuan, and selling 1 ton of seismic steel carries a bonus of 80 yuan,” said Shang. In Yunnan, key manufacturers of internal combustion engines include Kunming Yunnei Power Co., Ltd.(000903) and Yuxi Diesel Engine Manufacturing Plant. By offering the policy, Yunnan Province attempts to speed up enterprises’ inventory turnover.

Yunnan Province plans to purchase and store 300,000 tons of major metals, including 200,000 tons of aluminum, 20,000 tons of copper and 50,000 tons of zinc. In addition,600,000 tons of chemical fertilizers will be purchased and stored.

Qujing Municipal Government decided to purchase and store 400,000 tons of coke, 200,000 tons of pig iron and 50,000 tons of steel.

In the case of clean energy-loaded enterprises that meet the national industry policy with monthly power consumption above 2 million kWh, for the monthly power consumption above the base, tariff is reduced by 0.1 yuan/kWh.

In the case of clean energy-loaded enterprises and power supply enterprises with power voltage above 110,000, direct purchase is put into trial implementation.