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China’s State Council Approves Adjustment and Stimulus Plan for Non-Ferrous Metals

iconDec 7, 2009 13:16
Source:SMM

SHANGHAI, Mar. 17 (CBI China) -- On February 25th, China’s State Council approved in principle the adjustment and stimulus plan for China’s non-ferrous metal sector. According to the plan, the Central Government will support technological innovation through a loan subsidy program, speed up the establishment of a national reserve system, and adjust the sector’s export rebate system.  Details of the incentive plan have not yet been released, but the general scheme is known in the market, and CBI had made an exclusive analysis of the impact of the plan on the non-ferrous metal market.

    Copper

    According to CBI sources, the plan will encourage large domestic enterprises to reorganize in various ways, in order to form 3-5 comprehensive non-ferrous metals groups who will be more competitive, as well as help the proportion of copper output at these new groups to increase to 90% in 2011 from the current 70%. Among  enterprises in non-ferrous metal sector, CHALCO, China Nonferrous Metal Mining (Group) Company (CNMC) and China Minmetals Corporation will receive the most support from the Central Government. In addition, the Central Government will accelerate reorganization among CHALCO, Jiangxi Copper, Tongling Non-ferrous Metals Group, Jinchuan Group, and other major copper smelters to improve competitiveness and financial strength in developing overseas resources. The plan also requires elimination of 300kt/yr of capacity of small copper smelters over the next three years.  The Central Government will also increase export rebates to an average 13% for high-precision copper tube, high precision copper plate, sheet and strip, and high-quality copper foil.

    CBI believes these positive measures will promote exports of copper semis, helping relieve pressure at those producers. The program will also help to accelerate upgrades in the sector, including improving the  concentration degree of domestic copper smelting capacity, and the development of high value-added products. If the incentive plan is effective, the influence from domestic copper smelters on international markets will increase. 

    Aluminum

    According to CBI sources, implementation of the national reserves and direct-supply of electricity will become two highlights of stimulus plan. According to the plan, small-scale, prebaked cells with a total capacity of 800kt/yr will be eliminated over the next three years.

    In addition, the proposal of direct-supply of electricity is included in the incentive scheme.  Insiders say 16 domestic aluminum producers will become pilot enterprises for the program.

    The issue of elimination of inefficient aluminum capacity in the stimulus plan is in line with the Central Government’s consistent control policies for China’s aluminum industry. However, the majority of small pre-baked cells with total capacity of 800kt/yr slated for elimination began cutting production at the end of 2008, and currently remain offline, so the new policy will not negatively affect market supply. The elimination of 800kt/yr in total capacity will not be enough, however, to ease excess aluminum capacity in China, which currently stands at 18.5 million mt. 

    Lead

    A major task for the Central Government is to eliminate 400-kt/year of inefficient lead capacity over the next three years.  In addition, 3-5 comprehensive non-ferrous metals groups will be established in an effort to improve the output proportion at major domestic lead and zinc smelters to 60%.

    According to a CBI survey, market players in lead markets showed only a mild reaction to the program. As the product with the smallest varieties of products, in both upstream and downstream industries, lead prices have frequently experienced wide price fluctuations. Market players have long desired the introduction of a futures system, to help manage and minimize risks, but this issue is not included in the stimulus measures, which puts an emphasis on integrating and optimizing upstream industries. Although current positive measures implemented by the government will also improve competitiveness of domestic lead smelters, oversupply in domestic markets will not be eased without making corresponding regulations on downstream industries.

    Market players are also concerned about import and export tariffs on lead, and export rebates on lead-acid battery. However, these are sensitive subjects in the current global economic crisis, and these questions may need to be resolved by market itself. CBI believes the Central Government should pay more attention to the drastic fluctuations in lead prices, and adopt more unconventional methods to regulate lead markets.

    Zinc

    The depressed zinc market has regained hope by the approval of stimulus plan.  National zinc reserves and the elimination of inefficient capacity are the focus of market players. To date, the total reserves established by China’s State Reserve Bureau have reached 159 kt, the equivalent of China’s industrial output for two weeks.  The national reserves have played a significant role in boosting domestic zinc prices, and China’s concentration degree of zinc smelting capacity will be improved by eliminating inefficient capacity and consolidating smaller zinc smelters within each province. CBI believes the Central Government’s positive policy on zinc is what market players have been waiting for since 4Q08, when profits in the industry were seriously eroded. Only by raising the industrial concentration rate and reorganizing smelters can China’s zinc industry develop in a healthy and sustainable way. 

 

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