HONG KONG, Mar. 30 -- A severe drought in Yunnan province is cutting lead and zinc concentrate supplies from small mines, lifting prices in China, the world's biggest market for the two metals, smelter officials and traders said on Monday.
"The drought in Yunnan is affecting smaller mines' concentrate production," said a trade executive at Zhuzhou Smelter, the top zinc producer in the country.
Water is needed to wash impurities out of ores.
The worst drought in a century has been ravaging Yunnan and the neighbouring regions of Guizhou and Guangxi, leaving millions with insufficient drinking water and cutting hydroelectricity generation, which has already slowed production of primary aluminium and refined lead.
Yunnan was China's second-biggest producing province of both zinc concentrates and refined zinc last year. It was also the sixth highest producer of lead concentrate and fourth highest producer of refined lead.
Traders said Chinese mines were limiting supplies of lead and zinc concentrates due to expectations that the drought should cut production in Yunnan, driving up prices.
Purchases by a local unit of a large European trading house that is starting warehousing in Guangxi have also reduced supplies smelter officials, traders and sources at the trading house said.
However, an official at Jinding Zinc, a unit of Sichuan Hongda <600331.SS> that operates one of China's largest zinc mines, said the mine in Lanping was adjacent to a large river and did not have water problems. The mine produced 120,000 tonnes of zinc in concentrate a year.
The shortage of concentrate has seen processing fees, paid by Chinese miners to smelters for processing material, fall to between 5,700-6,200 yuan per tonne for spot zinc concentrates from 6,000-6,500 yuan in the previous two months, traders said.
The fees for spot lead concentrates have dropped to below 2,000 yuan per tonne from 2,000-3,000 yuan.
Treatment charges for spot zinc concentrate imports to China dropped to around $160 per tonne late last week, lower than Chinese smelters' requirements of $180-$190.
Spot lead concentrate imports to China were indicated at TCs of about $110-$130 per tonne versus $110-$150 in December.