[SMM analysis] accelerated recovery of zinc concentrate production in March is expected to be limited in April

SMM4, 16 March:

According to SMM research, zinc concentrate production in March 275800 tons, month-on-month accelerated recovery, but lower than last year. The violent decline in zinc prices under the influence of the epidemic has touched the cost line of some small and medium-sized private mines with low-grade small production capacity and high cost. After failing to resume normal production after the epidemic, it means that recovery has been delayed indefinitely due to losses. The withdrawal of this part of production capacity has reduced zinc concentrate production in March. On the other hand, the large mines with low cost and relatively abundant cash flow have basically returned to the normal production level in March, but the zinc price has fallen too quickly and the processing fee has been adjusted slowly. In March, the mine price once fell to 8500 yuan / metal ton, reaching the 75-quartile line of mining cost. The subjective production enthusiasm of mining enterprises is not high. At the same time, the number of enterprises that cherish the sale and control of goods has further increased, and the supply of domestic zinc mines has been slightly tightened. From a regional point of view, Most of the large mining enterprises in Inner Mongolia have returned to normal production, but the willingness to sell is the strongest, and some enterprises have been unable to sell since they resumed work. On the other hand, southern mining enterprises such as Yunnan, Hunan, Sichuan, and Guizhou also basically returned to normal production in March. Their selling attitude was not strong, and they continued to carry out normal monthly sales contracts, but sought to reduce processing fees in dialogue with smelters. if there is no appropriate reduction in processing fees, it will affect next month's sales planning, that is, it will also seek to control sales. At present, profit redistribution is imperative.

With the spread of the epidemic overseas, various countries have taken measures to blockade the country because of the need for epidemic prevention and control. The main impact on zinc is that Peru declared a state of emergency from March 16 to April 26 for a total of 42 days. As a result of this executive order, its domestic mining has been completely suspended, and its local mining enterprises, Nexa, Pan American Silver Corp., Buenaventure, etc., have announced that they have been affected to suspend production. The most pessimistic scenario is expected to affect mineral production of 160000 metal tons, while Peru accounts for 18 per cent of China's imports in 2019, an impact that cannot be ignored in the short term. Australia, China's major importer in 2019, has not yet announced that production has been affected by the epidemic, but according to news reports, ports in some parts of Australia have strengthened restrictions on epidemic prevention and control. At the same time, some countries in transit places have also adopted the necessary prevention and control restrictions on port calls, and ocean transportation is expected to be greatly restricted.

According to SMM survey, at present, there are few offers for imported mines from April to May, which to a certain extent indicates that the supply of imported mines to China will be delayed or even absent in the short term, temporarily reversing the pessimistic situation of oversupply of zinc fundamentals. Because China's dependence on foreign mines is about 20%-30%, looking at China as a whole, domestic sales and superimposed imports are not smooth, which means that the gap at the domestic mining end may be more than 20% to 30%. The short-term mining end has changed from surplus to shortage risk, which has promoted the rebound of zinc prices, and has also become the motivation for the rapid reduction of domestic processing fees. In March, the zinc processing fee dropped from about 6250 yuan / metal ton to about 5800 yuan / metal ton.

Driven by the decline of 400-500 yuan / metal ton in superimposed processing fees, large domestic mining enterprises have eased their sales control, and it is expected that there will be no production reduction in April, but the current price still cannot boost all small and medium-sized enterprises to resume production. SMM expects that the national mine output increment in April will be limited.

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