China's Zinc Market Pressured by Weak Consumption and Increased Supplies
By Ida Chen and Li Chunlan
10 Apr 2008 at 10:05 AM GMT-04:00
resourceinvestor.com
SHANGHAI (Interfax-China) -- China's zinc market will become increasingly bearish in the coming months on the back of declining consumption and capacity expansions in the country, analysts told Interfax today.
"The U.S. subprime crisis is playing a leading role in slowing the country's economic development, and this is damaging zinc consumption. At the same time, the Chinese government's tight currency policy has also weakened zinc consumption, and this will drag this year's average zinc price under last year's average," Joint Futures analyst, Ren Jianfeng, said.
Domestic zinc smelters are also gearing up to unveil a number of major capacity expansion projects, with several scheduled to kick off operations in the second half of this year.
"These capacity expansion projects are likely to increase China's refined zinc output by around 300,000 tonnes to 4.05 million tonnes this year," Zhu Yiman, an analyst from Shanghai-based Metalease, said.
A number of major zinc projects will also become operational in the third quarter of this year, including Shaanxi Dongling Group's 80,000-tonne zinc smelting project, Yuguang Lead and Gold Group's 100,000-tonne zinc smelting project and Zhuzhou Smelter Group's 100,000-tonne zinc smelting project.
China's investment in the lead and zinc smelting sector surged by a remarkable 126.43% year-on-year to RMB 285.22 million ($40.80 million) in the first two months of this year, while investment in the lead and zinc mining sector fell 12.26% over the same period to RMB 93.8 million ($13.42 million), according to statistics released by the China Nonferrous Metals Industry Association.
"Zinc prices on the Shanghai Futures Exchange (SHFE) will stay at historical low levels for the moment, but will further drop off if copper prices fall from current levels. This is because the zinc market is very weak and prices are mainly being supported by high copper prices," Ren said.
However, although Chinese zinc smelters are carrying out capacity expansion projects, which will lead to increased zinc concentrate imports this year, global zinc mines are up to the task of keeping up with this year's demand, a Zhuzhou Smelter international trade department official, surnamed Wang, said when reached by Interfax today.
Spot treatment charges (TCs) for imported zinc concentrate will generally stay above $300 per tonne this year, on the back of a global zinc concentrate surplus. The current low spot TC for Chinese smelters of between $280 per tonne and $290 per tonne, compared to last year's high of between $360 per tonne and $380 per tonne, will only be short term, Wang said.
TCs are fees paid by miners to smelters to cover the costs of processing concentrate into metal.
Wang said that some domestic smelters recently accepted a TC of $325 per tonne for 2008 long-term contracts, with a basis price of $2,500 per tonne on the London Metal Exchange (LME) involving an escalator of 11% and a de-escalator of 7%. Escalators are an important part of long-term contracts, and take into account changes in underlying zinc prices.
Zhu from Metalease agreed with Wang's forecast for spot TCs this year, but expressed concern that the domestic zinc market will be further pressured as a weakening U.S. dollar and Renminbi appreciation will lead to increased imports in the coming months.
China shifted from a net exporter to net a importer of zinc in February this year. The country imported 8,984 tonnes of refined zinc over the month, compared to exports of 6,679 tonnes.
Zinc contracts for June 2008 delivery, the most active zinc contracts on the SHFE, finished 0.16% higher at RMB 19,275 ($2,757.51) per tonne on Wednesday. However, prices have tumbled by 17.56% from RMB 23,380 ($3,344.78) per tonne since March 4, the highest point of the year thus far.
The three-month zinc price on the LME slid by 2.69% to close at $2,350 per tonne overnight on Tuesday.
© Interfax-China 2008. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com. |
