In retrospect, it was a brilliant move by China: when the copper price was at a low point in spring 2020, the country started buying up metal for the country’s strategic reserve on the market. A little over a year later, in the summer of 2021, prices rose rapidly – and China managed to calm the local commodity markets and relieve domestic industry with sales of copper, aluminum and zinc.
China has built up strategic reserves of every commodity considered critical: from aluminum to zinc, from crude oil to pork sides. Europe, on the other hand, only launched a strategic natural gas reserve at the end of last year – an oversight that is now taking its revenge in the biggest energy crisis in decades. In the meantime, there are increasing voices from business calling for state strategic reserves for other raw materials critical to production, such as metals or rare earths.
But strategic reserves are not a panacea – and China should not serve as a model for the economies in Europe, even if some commodity bets have proven to be worthwhile for the Middle Kingdom.
The fact is: The strategic oil reserve has proven useful in the past to prevent empty pumps and reduce the incentive to buy hamsters. Therefore, a gas reserve can also make sense so that consumers do not have to freeze in winter.
Top jobs of the day
Find the best jobs now and
be notified by email.
However, strategic reserves are unsuitable for combating high prices, as has recently been shown: Oil prices, for example, often even rise after a government-decreed oil glut.
The companies know better
The prospect of a public authority in Europe exploiting short-term price weaknesses on the raw materials markets to supply companies with cheap copper or aluminum in the event of a crisis also contradicts our market economy logic.
>> Read here: War in Ukraine causes considerable problems in purchasing
In any case, the companies themselves know much better which raw materials are necessary to secure their production. You are also responsible for hedging yourself against price risks.
It is not the politicians who have to think more strategically and keep a better eye on the market – but the chief buyers. The problem is exacerbated by the fact that many strategic raw materials cannot be stored centrally.
Lithium chemicals, for example for electric car batteries, are highly specific products that vary from manufacturer to manufacturer. Inventories at company level are the only viable solution in these cases.
Buying hamsters ordered by the state would also be difficult to morally justify – this is particularly evident in the case of agricultural commodities. When the whole world tries to buy raw materials at the same time, the cost for everyone increases. A lose-lose situation.
More: Deutsche Bank advises strategic raw material reserves – not only for oil and gas.