SMM Pb Survey: Rising Operating Rates at Chinese Lead Smelters

 SHANGHAI, Jan. 18 (SMM) -- A recent SMM survey of 25 domestic lead smelters (total capacity: 2.41 million mt/yr) revealed the following insights:

1) Higher Operating Rates at Domestic Lead Smelters in December
According to the survey, overall operating rates at those lead smelters were 72.85% in December 2009, up 7.5% from November levels, with total output growing 15 kt to 146.3 kt. Of those smelters, operating rates at lead producers with the capacity of less than 50kt/yr experienced the most significant improvement, up by 16.3%. SMM believes the two following reasons were the reason behind higher output at lead smelters. First, some producers completed the unit maintenance in December. Second, supply of raw materials was stable in December. However, the survey also found that raw material stocks of for post-holiday production was a bit tight, with production cuts already in January. Coupled with the negative impact on production amid the freezing weather, SMM predicts domestic lead market will feel pressure from falling output of primary lead during 2Q. In addition, smelters' unwillingness to move goods starting from the previous week made their inventories of finished products increase, but most lead smelters said existing inventories would not give them pressure.

2) Bullish Sentiment towards Pre-Holiday Market Prices Cools
Last week, Chinese Central Bank's move to raise the deposit requirement reserve ratio and no improvement in downstream demand cooled the bullish sentiment. Market players generally believed domestic lead prices would stabilize or increase slightly before the arrival of Chinese New Year holiday, given no significant recovery in downstream demand. At present, those downstream producers with relatively more orders had built stocks at prices below RMB 16,000/mt, and so represented low purchasing interest due to existing higher prices. Those producers with limited orders preferred to buy products cautiously, with purchases generally made on an as-needed basis. However, higher raw material prices made lead smelters reluctant to sell off goods, and optimism towards prices in the post-holiday market further reduced their already low interest in selling products at lower prices. As a result, trading sentient between sellers and buyers came into a stalemate. 

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