China Zinc Smelter Fees May Drop 14% Next Year on Mine Closures
bloomberg.com
By Xiao Yu and Li Xiaowei
Sept. 17 (Bloomberg) -- China's zinc smelters, the largest in the world, may get paid 14 percent less next year to process metal as they compete for shrinking raw material supplies.
Processing fees, also known as treatment charges, may drop to 6,000 yuan ($878) a metric ton in China from an average of 7,000 yuan this year, according to Zhang Jie, chief financial officer at Yunnan Chihong Zinc & Germanium Co., the nation's fifth-biggest zinc smelter.
The cut, the first since at least 2006, will add to pressure on earnings at Hunan Nonferrous Metals Corp., China's largest producer, and Yunnan Chihong which slumped in the first half after a 27 percent drop in zinc prices in Shanghai this year. The reduction forced mines in China and abroad to close, cutting supply of the concentrates that feed smelters.
``Smelters and miners are fighting to maintain profits in a bear market,' Zhang said in an interview by phone from Qujing, Yunnan province. ``Some miners said they won't restart mines unless prices significantly rebound.'
Zinc traded at 14,105 yuan a ton on the Shanghai Futures Exchange, down 59 percent from a record 34,745 yuan on May 10, 2007. Zinc has fallen 27 percent in Shanghai and on the London Metal Exchange this year. China is the largest consumer of zinc.
Rising costs and falling metal prices forced mines to close globally, as supply outpaced demand hurt by an economic slowdown. Teck Cominco Ltd. and Xstrata Plc in July said they will close their Lennard Shelf zinc mine in Australia. AIM Resources Ltd. in the same month said it stopped work on its project in Burkina Faso. Intec Ltd. closed its Hellyer zinc mine in Australia this month.
Profit Declines
Hunan Nonferrous profit declined 75 percent to 74.2 million yuan in the six months ended June 30 as zinc prices dropped and snowstorms cut production. Yunnan Chihong's profit dropped 69 percent to 204.9 million yuan in the same period from a year ago.
Mining companies in China's Yunnan province, which produced about 25 percent of the country's zinc concentrate last year, are reducing output, said Yunnan Haolong Industrial Group Co.
``Mines with production capacity below 10,000 tons are mostly unprofitable,' Zhang said.
Yunnan Haolong, which makes as much as 100,000 tons of zinc and lead concentrate in metal content a year, halted production of low-grade ore and cut back on high-grade ore because of falling prices, said Vice President Suo Fang by phone from Kunming, Yunnan province.
It cut fees to smelters to 7,300 yuan a ton from more than 8,000 yuan a ton, Suo said.
Production Curbs
Mining companies in Hunan province, China's third-largest zinc concentrate producer, also stopped low-grade output because of losses, said Yuan Zhigan, assistant to board director of Chenzhou Xiangheng Mining Ltd.
Some producers have switched to tin, Yuan said. Chenzhou Xiangheng Mining owns five small lead and zinc mines in Hunan.
Chinese smelters buy 70 percent of zinc concentrates domestically and the remainder from global miners such as Teck Cominco, the world's second-largest producer.
``It is extremely difficult to obtain zinc concentrates from overseas,' Zhang Heng, general manager of Xi'an Bangwon Import & Export Co., a buyer of Australian ore, said over the phone from Xi'an. Processing fees have dropped below contract fees, he said. |
