State purchases will help reduce the excess inventories of domestic producers and ease pressure on their cash flow, Wen said, but the move only eases short-term pressures and does little to address the excess capacity or the unbalanced supply-demand ratio.

In the long run, technological transformation and structural adjustments will serve as the basis for the industry's long-term healthy development, he said.

The policies and measures the State Council outlined in the plan include: further adjusting export tax rebates on nonferrous metals to favor the export of hi-tech and high value-added products; supporting overseas investment by large enterprises to guarantee stable and sufficient resource supply; and facilitating capital injection and foreign reserve application concerning overseas projects.

While the plan will undoubtedly ensure the industry's steady growth by strictly controlling new production capacity and eliminating obsolete capacity, some of the measures could give rise to a new round of capacity expansion, Wen said.

Since the restrictions target new projects of small capacity, enterprises may turn away from small projects to large ones through, say, technological transformation of existing production capacity that must be eliminated according to the plan. This may further expand the industry's excess production capacity, he said.

Nonferrous metal prices have climbed since the plan was announced. On May 15, aluminium ingots futures on the Shanghai Future Exchange stood at about 12,890 yuan ($1,887) per ton, and electrolytic copper futures at 36,700 yuan ($5,373) per ton, up 32.2 percent and 47 percent, respectively, from their lowest prices at the end of last year.

Goals of the Nonferrous Metal Industry Stimulus Plan

Efforts will be made to ensure steady operation in the nonferrous metal sector in 2009, and lay the basis for the industry's sustainable development by 2011.

Production recovery.

A myriad of measures will be adopted to stabilize market demand, production and operation, and promote major financial indices to clear up.

Obsolete capacity elimination.

A total of 300,000 tons of outdated production capacity of copper, 600,000 tons of lead and 400,000 tons of zinc will be eliminated this year. By the end of 2010, up to 800,000 tons of obsolete electrolytic aluminium production capacity will be eliminated.

Energy saving and emissions reduction.

About 1.7 million tons of coal and 6 billion kwh of electricity will be saved annually, while 850,000 tons of sulfur dioxide emissions will be eliminated as a result of industrial upgrading efforts for the nonferrous metal sector.

Industrial restructuring.

Three to five competitive corporations will be formed through mergers and acquisitions so that the top 10 domestic producers for copper, aluminum, lead and zinc will account for, respectively, 90 percent, 70 percent, 60 percent and 60 percent of the country's total output by 2011.

Reinforced innovation capacity. Breakthroughs will be made in key crafts and technologies, energy-saving and emission-reduction technologies, and high-end product research and development so as to promote progress in industrial technologies, improve product quality and optimize product lines and diversity.

Guarantee stable resource supply.

By 2011, the industry will supply up to 40 percent of copper, 56 percent of aluminum and 38 percent of nickel to meet the needs of the country's manufacturing sector. By then, the industry will have an alumina production capacity of 1 million tons; recycled copper and aluminum will account for 35 percent and 25 percent of the country's total copper and aluminum outputs, up 6 and 4 percentage points, respectively, from 2008.