Zhongjin Lingnan Says Zinc Fees to Drop By a Third
2008-12-23 08:23:40.802 GMT
By Li Xiaowei
Dec. 23 (Bloomberg) -- Shenzhen Zhongjin Lingnan Nonfemet Co., China’s fourth-largest zinc smelter, said the fees it charges mining companies to process their raw material into finished metal may drop by a third as metal prices plunge.
Zhongjin Lingnan expects contract fees to drop to $200 a metric ton at a basis price of $1,000 a metric ton, Han Minzhi, general manager of sourcing, marketing and sales, said in a phone interview. The fees for 2008 were $300 at a basis price of $2,000, according to Macquarie Group Ltd.
Zinc, used to galvanize steel, has plunged 51 percent this year on the London Metal Exchange as the global credit crunch and economic slowdown reduces raw material demand. Treatment charges, known as TCs, may drop for the first time in three years as a result and extend losses at smelters.
“Two hundred dollars is the high end of our projection, and our low end is $150, which is the current spot fee,” Zhao Kai, an analyst at Jinrui Futures Co., said today from Shenzhen.
“A big enough reduction in the fees would make smelters continue with production cuts until the surplus is wiped out”.
The global refined zinc surplus widened to 121,000 tons in the first 10 months of this year, from 14,000 tons a year earlier, the International Lead and Zinc Study Group said this month.
“With zinc having fallen so much, smelters and miners have to share the losses felt by the whole industry,” Zhongjin Lingnan’s Han said, adding lower fees are a “reasonable concession.”
Zhongjin Lingnan, which recently agreed to acquire a 50.1 percent stake in Australian miner Perilya Ltd, declined 7.4 percent in Shenzhen trading compared with a 4.9 percent decline on the CSI 300 Index.
Industry Losses
China’s zinc smelters, which are all unprofitable, have cut production to try to boost prices and ease oversupply. The nation’s largest zinc smelter, Zhuzhou Smelter Group Co., reported a loss of 5 million yuan ($731,670) in the third quarter compared with last year’s profit of 62.2 million yuan.
The 2009 settlements are expected to include “price participation” clauses allowing smelters to benefit from rising zinc prices, Han said. These may include a so-called “escalator” of 6 cents for every $1 gain in London zinc prices above the base price, he said. For every $1 drop in prices, the smelters may receive 6 cents less.
Smelters in China, the world’s largest producer and consumer, buy 70 percent of zinc concentrates domestically and the remainder from global miners.
Mine Closures
Falling metal prices forced mines to close globally, as supply outpaced demand. Xstrata Plc, the world’s largest zinc producer, cut output at an Australian mine this month, and Glencore International AG, the world’s largest commodities trader, suspended operations at its Rosaura zinc mine in Peru.
Zinc miners and producers in China are also reducing output.
Mining companies in China’s Yunnan province, which produced about 25 percent of the country’s zinc concentrate last year, are closing low-grade and smaller mines, Yunnan Haolong Industrial Group Co. said in September.
The metal for three-month delivery fell 1.7 percent to $1,160 a ton at 3:29 p.m. in Shanghai.
Smelters buy zinc concentrate at a price based on the London Metal Exchange benchmark, minus treatment charges, which are adjusted each year to reflect costs and the supply and demand outlook. |
