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SMM Exclusive: Survey of Negative Impact on China Nonferrous Metals Markets From Snowstorms and Freezing Weather
Jan 8,2010 17:50CST
smm insight

SHANGHAI, Jan. 8 (SMM) -- Since Saturday evening, January 2nd, the cold snap has started to hit Beijing, Tianjin, and regions in Hebei province, with heavy snows. The freezing weather not only disrupted  people's normal life, but exerted negative impact on the industrial production. Affected by the cold wave that swept the country, consumption of electric power hit new highs and supply of electricity was restricted in many cities of central and east China. Supply of coal for electricity generation tightened as well. Currently, snow has stopped in north China, and the temperature has gradually warmed up in some regions. However, many regions will still be hit by strong cold air in the following 10 days. In this context, China's Ministry of Industry and Information Technology released an emergency notice on counter-measures against the negative impact of heavy snows on the industrial system. In accordance with the notice, no efforts will be spared to eliminate the negative impact on logistic industry caused by stormstorms and to guarantee smooth deliveries of industrial raw materials, fuels and other products. The followings are SMM exclusive surveys of negative impact on domestic nonferrous metals markets from freezing weather and heavy snows.

Recent heavy snows in east and central China tightened supply of electric power and coal for electricity generation, and local governments will likely take more controls on supply of electricity. However, any negative impact of electric power restriction policy on copper production will be limited in view of relatively less electricity consumption during the production process. It usually uses 1000 KWH to produce one ton of copper, which is far less than electricity consumption in producing aluminum. Hence, supply of refined copper will not fall by the restriction of electric power supply. In addition, heavy snows in north China also hampered local transportation. After contacting with upstream and downstream producers, SMM found supply of refined copper was negatively affected this week in North China due to hampered transportation, but downstream producers were able to maintain production thanks to previously-built inventories. Supply of copper will enter into the market in the near future, as transport problems are gradually easing. In addition, most copper smelters and downstream enterprises in north China generally sell their products in the neighboring regions. Moreover, output and consumption in north China account less than 10% of the total. Therefore, the negative impact caused by heavy snows on the overall domestic copper market will be limited.

Recently, inventories of coal for power generation were at low levels, and many provincial government limited supply of electricity. In addition, aluminum prices advanced significantly this week due to the expectations that output of aluminum would reduce due to tightening supply of electric power. SMM conducted an in-depth survey to this issue.

As to railway transportation, currently overall transportation was normal in north China, and some railway carriages were stopped halfway due to heavy snowfall.  The transportation of aluminum was delayed for a longer time in only limited regions, since deliveries of coal enjoyed the priority due to snowy weather, and delays of aluminum transportation in most regions were generally resolved in three days. Therefore, any negative impact from snowstorm on aluminum transportation was relatively limited.

In other news, market rumors reported that the electricity use may be restricted at aluminum produces due to tight supply of electric power, but it is unlikely to occur unless the transportation of coal for power generation deteriorated due to heavy snowfall.  According to market sources, Henan provincial government once urged enterprises to make preparation for restriction of electric power supply, and any details concerning the condition of implementation and the scale of electric power restriction remain unknown. However, most aluminum producers have electric power generating plant of their own, and SMM believes the situation of electric power restriction will not likely occur in view of the acceptance by aluminum producers with power generating plants of their own of higher-priced coal for power generation, unless transportation of coal for power generation is deadly blocked. The situation is the same in Shandong province.

In addition to these two major aluminum producing provinces, Hunan and Hubei provinces also experienced supply shortages of electric power, but aluminum production reported no arked changes in their production, with exception of few producers, who reduced output limitedly.

SMM believes that tight supply of electric power exerted limited impact on supply of aluminum, but the electricity prices increased significant rises in all regions, further pushing up production costs at aluminum producers. In addition, a portion newly expanded aluminum capacity scheduled to come online in January and February was postponed due to shortage of electric power supply. SMM will pay more attention to impact from possible freezing weather on aluminum market.

A strong cold wave was moving from northwest to southeast China, and reached to Jiangsu and Shanghai on January 5th. Electricity consumption instantly reached to a high and inventories of coal for electricity generation dropped to low levels in the areas that were stricken by the freezing weather. Media reported inventories of coal for power generation were not enough to use in many provinces of central and east China. Shanghai, Jiangsu, Hubei started to limit supply of electric power (Henan, Hunan, Jiangxi and Chongqing also join in). Electricity consumption hit new highs in Henan, Jiangxi, Sichuan, Jiangsu and Zhejiang provinces as well.
Up to January 6th, with the exception of some lead smelters in Wuhan and Henan provinces having been required to reduce electricity consumption, smelters in other regions reported no such an impact from electric power supply shortages amid the freezing weather.

The cold wave is at its early stage, and has begun to exert negative impact on both upstream and downstream producers. As domestic lead market is currently in the struggling phase, lead producers take cautious attitude towards production and sales. 
However, the cold snap will raise market expectation of the replacement of lead-acid battery. A particular attention should also be paid to the fact that domestic lead prices are lower than other domestic base metals and LME lead prices.


Recently, the heavy snowfall occurred in north China, and the freezing weather is expected to continue in next 10 days, which will directly affect the normal life throughout north China. In the mean time, the freezing weather in north China will directly affect ore mining at lead and zinc mine operators, and it seems that zinc smelters with raw materials sourced from these mine operators and selected zinc smelters in north China will be affected negatively as well.

However, according to SMM sources, zinc concentrates produced by domestic lead and zinc mine operators and previous zinc concentrate inventories held by traders and producers have flowed into market due to rising zinc prices since 4Q 2009, and raw material stocks at zinc smelters were relatively sufficient as a result. In this context, although the heavy snowfall in early 2010 affected normal production of selected mine operators, any impact on zinc smelters was very limited.

In other news, fresh agricultural products and coal for power generation enjoy the priority of transportation due to freezing weather in China, in turn limiting transportation capacity for zinc ingot, and delaying deliveries of goods to Tianjin, Hebei, and other major trading regions in north China. In addition, a portion of zinc smelters were reluctant to sell goods upon their optimistic market outlook, also reducing market supply of spot goods. In the context, zinc inventories in Tianjin experienced declines. However, operating rates in construction and other industries fell due to soaring zinc prices and freezing weather, resulting in orders declines from galvanizing and other zinc downstream industries, signaling zinc demand was waning. In general, zinc supply experienced declines, and zinc demand dropped as well, so any actual impact from freezing weather on zinc market will be limited. 

According SMM sources, domestic tin smelters have suffered little from bad weather, as most tin smelters are located in south China, where no heavy snows hit. With the exception of Linxi Liren Tin Industry Development Company ("Huanggang" brand tin ingot) located in Inner Mongolia, the company has halted production since 2H 2008 due to depressed market performance. Production suspension in other select producers is the result of environmental protection inspections and shortages of raw materials, which was unrelated to the weather factor. Traders with tin ores on hand have been reluctant to move goods recently in view of soaring tin prices. In addition, scrap tin was rarely seen in the market due to shortages of resources.

The heavy snowfall in China disrupted some highway and airline transportation, hampering deliveries of NPI from Ningxia and Inner Mongolia.

Most NPI producers in Inner Mongolia said they faced difficulties in transporting goods. NPI producers replenished nickel ore stocks in October as usual and their NPI orders signed have lasted until February to April, and offers of spot goods were relatively high due to tight supply, but actual order prices failed to increase significantly, with prices mainly between RMB 1,280-13,00/mtu range. Finished goods couldn't be shipped out due to transportation bottlenecks caused by heavy snow, hampering goods delivery. Enterprises believe that this situation will remain unchanged. Inner Mongolia did not report restriction of electric power, and enterprises maintained stable production. Enterprises in Ningxia told that their production remained stable despite of transportation pressure caused by heavy snowfall, and they faced no problem concerning supply of electric power, but deliveries of goods were hampered, so they did not offer prices. Major NPI (10 -15%) producing regions also experienced difficulties in goods delivery, tightening market supply of NPI (10 -15%), and offers advanced gradually as a result. Currently, steel mills increased purchase volumes, leaving upward momentum for NPI prices.

Current snowy weather in China exerted limited impact on silicon metal market. Major silicon producing regions are located in southwest and south China, with silicon capacity in northeast and northwest China accounting for 20% of total capacity.
As for transportation, goods from silicon producers in north China were shipped to Dalian mainly via railway transportation, so the bad weather exerted little impact on silicon transportation.
As for production, producers using electric power generated by coal will be affected negatively to some extent along with tight supply of electricity generated by coal, but most producers used hydro-power, so overall production wasn't affected by snowy weather. Currently, supply of silicon at domestic ports was relatively ample, demand was sluggish, and market sentiment was weak.

The main producing regions of EMM are located in south China (Hunan, Xiushan in Chongqing province, Guizhou and Guangxi). Although temperatures are low at present in south China, products transportation by EMM enterprises has not been greatly affected, since snowstorms and other extreme weather have not hit those regions.


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