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China’s recent measures aimed at cooling red hot industrial commodities prices will likely only have a temporary affect unless authorities take steps to curb consumption and potentially lower economic growth, analysts said.

China’s cabinet said on Wednesday it will strengthen its management of commodity supply and demand to curb “unreasonable” price gains to prevent consumers from being hit, triggering a rout across industrial metals on Thursday.

Yet with China’s robust economic growth driving strong metal use in both manufacturing and construction, and overall metal supplies constrained by output issues in key producers, policymakers are seen having only a limited influence on prices unless they bring about a cut in real demand.

“When it comes to commodities, Chinese officials are between a rock and a hard place. A stabilization, or even a decline, in prices would require curbing demand,” said Frederic Neumann, co-head of Asian Economics Research at HSBC.

“On its own, expanding supply, either through increased production or the release of stockpiles, will likely have only a temporary impact in restraining price gains. The trouble with curbing demand, of course, is that it would harm economic growth.”

If supply remains inelastic, “you can’t suppress demand without hurting the economy,” ING senior commodity strategist Wenyu Yao said.

“There’s no perfect solution.”

Threats of a mine strike in top copper producer Chile, and a delayed recovery in iron ore supply from Brazil’s Vale are expected to constrain overall metal supplies in 2021.

“STRATEGIC” MOVES

Beijing’s warnings over the overheated sector come after prices of key metals climbed by more than a third this year, contributing to a spike in factory gate prices and lower output last month.

Specific steps that Beijing said it will take include more regulation of imports, exports and stockpiling, tougher inspections of physical and derivatives markets, and investigations into behavior that bids up prices.

China does not disclose its strategic stockpile reserves. It has in the past bought commodities such as aluminum and zinc to support domestic producers, and sold some industrial metals like copper to cap runaway prices.

“China’s intention to release metals to contain the prices indicate that they have enough material stored to cool prices in the short term, but will not have a lasting impact on the market,” ANZ commodity analyst Soni Kumari said.

The National Food and Strategic Reserves Administration did not respond to a faxed request for comment.

“The (state) stocks release is essentially adding to market supply, but I don’t think this could solve the issue permanently. And it’s unwise to do this with large amounts too often, especially when it comes to copper, as it is a strategic metal,” ING’s Wenyu Yao said.

Beijing is also expected to crack down on hoarding, but again the affect is likely to be only temporary as overall inventories remain relatively low.

Even so, a recent slowdown in metal purchases by some Chinese builders shows that Beijing has cause for alarm.

“The government has two worries: Firstly, the price surge of commodities on end-users and inflation pressures, and secondly, if the price can’t be transmitted to end-users then downstream fabricators can’t survive, they have to shut down and will cause unemployment problems,” said a Hong Kong-based broker who did not want to be named.

“There are two sides, and they have to balance the policy.”

In addition to Beijing’s measures, the state planner this week said it would stabilize steel and iron ore markets and expects prices to cool in the second half of the year.

Local authorities in the steel hub of Tangshan last week warned against collusion and gauging, while commodity exchanges have also taken measures to tame prices.

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