SHANGHAI, Dec 19 (SMM) – SMM visited zinc smelters in Sichuan province in December to obtain information on operation and new capacity across the region. This is likely to reflect zinc supply growth as concentrate supplies expand.
China’s output of refined zinc failed to grow significantly even as higher processing fees resulted in higher profits. This generated concerns about supply bottlenecks and the commissioning of new capacity.
In the second half of 2018, processing fees for zinc concentrate were on a tear, with growing concentrate output domestically and abroad. Treatment charges (TCs) for domestic materials surged to the current 5,000-5,600 yuan/mt, from 3,000-3,500 yuan/mt at the beginning of the year. This grew the comprehensive fees that smelters charge miners for processing concentrates, to 6,000-6,500 yuan/mt. During the same period, TCs for seaborne materials also jumped to $140-160/dmt, from $20-30/dmt.
SMM data showed that China produced 456,400 mt of refined zinc in November, down 0.63% month on month and 10.4% year on year. Output in January-November came in at 4.88 million mt, standing 1.95% lower than the same period last year.
According to production schedules across Chinese smelters, zinc output is expected to decline 1,600 mt, or 0.36% from November to stand at 454,700 mt in December, down 5.99% compared to a year earlier. Output in 2018 is estimated to be 2.31% less than that in 2017.
Sichuan Hongda
About the company: Founded in 1979, Sichuan Hongda is involved in mining, smelting, chemical, domestic and foreign trade. Its products are sold in China and are exported to more than 100 countries across Asia, the Americas and Europe.
Raw materials: Hongda purchases raw materials from nearby areas and the north, and TCs that it can receive now stand at 5,500-5,800 yuan/mt in Zn content, delivered to plants, higher than TCs in nearby areas. With sufficient supplies of domestic zinc concentrate, Hongda did not purchase large quantities of seaborne materials recently. Volatile zinc prices prompted it to rein in stocks of raw materials, which now can support production for over a month, lower than the same period last year.
Capacity: Hongda owns annual capacity of 100,000 mt and is now operating in high gear. It is likely to keep operating at full capacity in the first quarter of 2019 if profit margins remain at current levels. Output of hot-dip galvanised zinc alloy this year is expected to reach 30,000-40,000 mt with that of zinc ingot amounting to 30,000-40,000 mt.
Stocks of finished products: Backwardation kept Hongda from stockpiling finished goods. The company is focused on depleting existing stocks as the year draws to a close.
Sales: Hongda sells most of its zinc alloys to large steel mills in the east that have good payment histories. Its long-term supply agreements signed with steel mills were based on the SMM 0# monthly average. A small amount of Hongda’s zinc alloys are sold to one-off clients.
Sihuan Zinc & Germanium Technology
About the company: Sihuan Zinc & Germanium was founded in 2015 with capital of 462.15 million yuan. It can produce 150,000 mt of electrolytic zinc, 100,000 mt of sulphuric acid and 40 mt of high-purity germanium dioxide and process 150,000 mt of zinc slag per year. The company engages in production and sales of zinc and germanium products as well as the research and development of zinc and germanium technologies.
Raw materials: The company relies on domestic zinc concentrate with seaborne materials as supplementary supplies. With current, ample supplies of zinc concentrate, TCs that the company can obtain stand at 5,300-5,500 yuan/mt in Zn content, delivered to plants, in December. In light of winter, the company purchased seaborne materials, some of which are expected to arrive in January. Current stocks of raw materials can support production for about a month.
Capacity: Sihuan Zinc & Germanium Technology has two plants with total capacity of 170,000 mt. It added another 50,000 mt which is expected to reach full capacity in the fourth quarter of 2018. Output is estimated to stand at 150,000-160,000 mt in 2018 and to jump to 200,000-210,000 mt in 2019. Maintenance and price volatility affected production in 2018 while new production lines would boost production in 2019. The company owns rotary kilns that can process waste from the zinc smelting process.
Stocks of finished products: Sihuan Zinc & Germanium does not stockpile finished goods and sells most of its products to nearby regions and the south.
Sales: Its zinc ingots all go to distributors and their long-term contracts were based on the SMM 0# monthly average. The company has not yet settled its 2019 long-term contracts.
Hanyuan Junlei Zinc Industry
About the company: Established in 2011 with capital of 20.8 million yuan, Junlei Zinc focuses on zinc smelting and processing. In recent years, the company has stepped up its social responsibilities.
Raw materials: The company mainly uses zinc bypoxide as raw materials, purchased from provinces of Jiangsu, Hebei, and Yunnan. It has its own baking furnaces and rotating kilns, with current raw materials inventories able to meet demand for up to two months. This is a relatively high level of in-plant stocks compared to other local smelters.
Capacity: Phase one construction for some 50,000 mt/year of capacity started in 2012. Phase two production, with capacity of 30,000-50,000 mt/year, began at the end of 2016. The second phase remains under construction and is expected to commission in the first quarter of 2019 at the earliest.
Stocks of finished products: Brisk demand in a current sellers’ market keeps in-plant inventories of finished products at lows. The company also does not hold stocks of finished products within plants.
Sales: Products were mainly sold to Chengdu and Hebei areas, with long-term contracts accounting for more than 90% of overall sales. Prices in long-term contracts were based on SMM monthly average prices.
Hanyuan County Yuanfu Zinc Industry
About the company: Founded in Hanyuan county of Ya’an city in 2007, and with capital of 20 million yuan, Yuanfu Zinc produces and sells zinc calcine, sulphuric acid, crude zinc, refined zinc, zinc hypoxide, and zinc powder. It operates with a valid licence.
Capacity: Manufacturing techniques, capacity expansion, and commissioning schedule all follow that of Hanyuan Junlei Zinc Industry. Its current new capacity under construction stood 10,000-20,000 mt lower than Junlei Zinc. Both its construction and production schedules are in line with Junlei Zinc.
New, expanded capacity at surveyed zinc smelters in Sichuan will come online in the first quarter of 2019, and reach full production in the second quarter at the earliest, SMM found. The expansion is set to raise the profile of Sichuan province among major production areas of zinc in China.
While current moderate profits supported smelters’ operation, capacity relocation of Zhuzhou Smelter Group in Hunan and production cuts at Hanzhong Zinc Industry in Shaanxi resulted in a bottleneck of domestic zinc output.
Production of refined zinc is likely to rally significantly in the second quarter of 2019, as new and expanded capacity in Sichuan comes on top of regular production and the impact from company relocation wanes.
