SHANGHAI, Aug. 17 (SMM) -- A recent CBI survey of 37 zinc smelters (total capacity: 4.19 million mt/yr) revealed the following insights:
1) Operating Rates
According to the survey, output at the 37 zinc smelters during July was 288 kt, with an average operating rate of 82.5%, up 1.5% from June levels. Operating rates at smelters with capacity between 20-100kt/yr were 66.5%, up 6.7%. Operating rates at smelters with capacity of 100-150kt/yr (including 100kt and 150kt) were 83.6%, up 2.4%, while operating rates at smelters with capacity greater than 150kt/yr were 90%, down 2% compared to June.
Domestic zinc prices have risen gradually during 2Q to RMB 13,000/mt, up from late April’s level of RMB 11,800/mt. The price increases have also caused operating rates at smelters to increase and have improved market confidence, especially for medium to small zinc smelters with capacity less than 150kt/yr (including 150kt/yr). The recovery in their zinc production capacity is attributed to improved futures and spot markets, as well individual enterprise strategy. Although a small number of smelters failed to operate normally due to raw materials supply problems, CBI believes the current tight raw material supply will be eased. Zinc output will increase, and zinc prices will rise, possibly breaking RMB 18,000/mt during 2H. In addition, average capacity utilization at large domestic smelters has fallen as new projects at two large domestic smelters came online.
2) Raw Material Inventories
According to the CBI survey, 19% of smelters believe raw material supply remains tight. The remaining 81% of smelters believe raw materials were easy to obtain, and this number is a significant increase from June. However, domestic output of zinc concentrate fell during July, so zinc concentrate imports are expected to increase significantly during July.
3) Zinc Inventories
The CBI survey revealed 46% of smelters were holding no zinc ingot inventories, unchanged from June, while 54% of smelters have limited inventories. Zinc prices have jumped 15% since mid-July, causing a reluctance by some smelters to sell goods, increasing inventories as a result.
4) New Projects
A small number of new projects at zinc smelters are under construction. Based on general smelter optimism, Yunnan Yuntong Zinc Industry advanced trial production at its new 40kt/yr zinc alloy facility to August 2009, previously scheduled to come online in 2010. During 2009, new zinc capacity has grown by 1.1 million mt/yr, bringing total zinc capacity to 5.9 million mt/yr.
5) Zinc Prices Forecast
According to the survey, although market demand is expected to report no significant improvement in late 3Q, 41% of smelters were optimistic towards zinc prices outlook, and 32% of smelters held a neutral attitude with regard to zinc prices, and the remaining 27% of smelters were uncertain about zinc prices given current rapid increases in zinc prices.
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