ANALYSIS - China makes strategic use of commodity collapse

By Eadie Chen

BEIJING (Reuters) - China's government is using the collapse in commodity prices to further its domestic agenda, with support for stricken sectors tailored to speed up reform plans rather than rescue ailing companies or prop up prices.

To survive plummeting demand for exports -- a sharp turnaround after several years of booming global demand -- many industries are looking for state help and consolidation.

But China's policymakers are sticking to their economic blueprints and not letting sympathy for troubled corporates overwhelm longer-term priorities. Instead, they are favouring the strongest in each industry in a drive toward consolidation, and at the same time using low prices as a chance to stock up.

On Monday, it emerged that China was poised to buy up thousands of tonnes of rubber and sugar to create a bigger state buffer of supplies for the future, adding to efforts to enlarge stocks of everything from oil to corn to industrial metals.

At the same time, however, it's letting small coal mines go to the wall, seizing a chance to make good on years of rhetoric, as well as allowing smaller, less efficient metal producers go under.

"As the fundamental balance moves towards a liberal supply of coal, it is an opportune moment to close small mines and speed up restructuring and consolidation of coal resources," Zhang Guobao, head of the National Energy Administration, said this week.

The government's State Reserve Bureau has begun building up government reserves of metal, buying around 300,000 tonnes of aluminium and 30 tonnes of indium and starting negotiations to add to its zinc and copper inventories.

The timing could hardly be better. Shanghai aluminium futures halved in the second half of last year to a record low of 10,125 yuan ($1,482) per tonne. Prices have fought back to 12,000 yuan, still a level not seen for 15 years. Copper and zinc have fallen by two-thirds since their peaks.