Spot lead, zinc fees may fall on firm Chinese demand
reuters.com
Fri Aug 29, 2008 4:52am EDT
HONG KONG, Aug 29 (Reuters) - Treatment charges for spot lead and zinc concentrates paid by global miners to Chinese smelters may fall in coming months due to stronger demand from the country and lower supplies from the global market.
Falling treatment charges (TCs) could slow down production growth of lead and zinc in China, the world's top producer of the two metals, and augur a rise in metal prices.
Charges received by Chinese smelters have fallen by two-thirds so far this year to about $100 per tonne for imported lead concentrates. For imported zinc concentrate, the charges have dropped by a third to $210-$240 per tonne, traders and Chinese smelter officials said.
"Some smelters have imported more concentrates because of lower international prices," said a trade manager at Zhuzhou Smelter (600961.SS: Quote, Profile, Research, Stock Buzz), China's top zinc smelter, with 400,000 tonnes of zinc capacity and 100,000 tonnes of lead capacity.
Some smelters produce both lead and zinc in China and buy mixed concentrates that contain both metals, and they have been expanding capacity.
Contract prices of lead MPB3 and zinc MZN3 on the London Metal Exchange have fallen 20 percent and 24 percent so far this year, respectively, making concentrate imports attractive to Chinese smelters given that concentrate prices are based on those of metals.
Imports of lead concentrate marked this year's highest inflow in July to 147,450 tonnes, while imports of zinc concentrate retreated to 151,403 tonnes in July after rising 72 percent on the month in June. <0#MTL-CN-STAT>
But supply of lead and zinc concentrates from Chinese miners has fallen because of a massive earthquake in Sichuan province in May and Beijing's tighter controls over small-scale, wildcat mining activity and a ban on using explosive products before and during the Olympics. [ID:nPEK130954]
Typically, lead and zinc mines are small in China due to the absence of large deposits, and they are not well captured by the country's statistics. Figures show that output of zinc in concentrate rose 15 percent to 1.7 million tonnes in the first seven months of this year, while lead in concentrate rose 33 percent to 708,200 tonnes.
The output covered 74 percent of China's zinc concentrate needs and 40 percent of its lead concentrate needs. In the first seven months of this year, China's output of refined zinc rose 8 percent to 2.3 million tonnes and production of refined lead rose 12 percent on the year to 1.8 million tonnes.
"Supply of concentrate from local mines has tightened this month," said a manager at Yuguang Lead and Gold (600531.SS: Quote, Profile, Research, Stock Buzz), the country's top lead producer with 300,000 tonnes of lead smelting capacity and 200,000 tonnes of zinc capacity.
But Chinese smelters are trying to build concentrate stocks before mines in northern provinces in the country close operations in the winter, traders said.
"Chinese smelters are very keen to import. They are asking for lead concentrate imports at TCs of $130 and zinc concentrates at $230-$240," a trader at an international trading house said.
But global supply of zinc and lead concentrates may fall as mines slash production in light of low metal prices.
Canada's Teck Cominco Ltd (TCKb.TO: Quote, Profile, Research, Stock Buzz) is closing its Lennard Shelf zinc and lead mine in Australia and Australia's Perilya Ltd (PEM.AX: Quote, Profile, Research, Stock Buzz) will cut lead and zinc production from its Broken Hill deposit.
"We do not want to sell now. The TCs are going to fall in coming months," the trader said.
Charges for spot zinc concentrate to China fell to zero in 2006, helping to lift LME zinc prices to an all-time high of $4,580 per tonne in November that year. (Editing by Ben Tan)
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