SHANGHAI, May 10 (SMM) -- A recent SMM survey of 40 zinc smelters (total capacity: 4.975 million mt/yr; idled capacity: 120 kt/yr) revealed the following insights:
1) Operating Rates
According to the survey, output at the 40 zinc smelters during April was 347 kt, with an average operating rate rising steadily to 85.6%, up from March's 85.2%. Only smelters with capacity greater than 200 kt/yr reported significant declines in operating rates during April, while small and medium smelters reported slight increases in operating rates. However, output at the 40 zinc smelters increased in April, with output at smelters with capacity greater than 200 kt/yr up 4.5% from March levels. Output at smelters with capacity less than 100 kt/yr and at smelters with capacity between 100-200 kt/yr (including 100 kt/yr and 200 kt/yr) during April was 55 kt and 152 kt, respectively.
SMM believes the slight decline in average operating rates at larger smelters was due to the addition of 100 kt/yr of new capacity at Shannxi Hanzhong Bayi Zinc Industry Company, adding to total capacity, but with output growing slower.
Shortages of hydro-electric power caused by the severe drought in southwest China were still having a negative impact on production during April at a small number of smelters. According to SMM sources, the tight supply of hydro-electric power may ease in May as the high water period begins, so SMM predicts output at zinc smelters in Sichuan and Yunnan provinces, including Sichuan Xichang Heli Zinc Company (60 kt/yr), Huidong Lead-Zinc Mine (50 kt/yr), and Yunnan Luoping Zinc & Electricity Company (120 kt/yr), will begin to grow gradually during May.
2) Zinc Market Outlook
Zinc prices have lacked upward momentum since early April, and metals prices in general have been falling since negative news, including Goldman Sachs fraud charges, Greece's debt crisis, as well as the move by China's government to cool its domestic real estate markets. Zinc prices have been unable to stabilize since the May Day holiday, depressing market confidence.
During the survey, SMM focused primarily on zinc price trends, with a variety of views expressed by smelters. The survey revealed 42.5% of smelters believe zinc prices have bottomed out, since domestic zinc prices are finding support between RMB 16,500-17,000/mt from speculative purchases, higher downstream buying interest, as well as production cost pressures at smelters. 27.5% of smelters believe zinc prices will fall by RMB 1,000-2,000/mt in the short term given high spot pressure and control measures for the real estate market. The remaining 30% of smelters believe challenges will increase in the current international economic environment and uncertainty will grow with regard to zinc price trends. In general, smelters are still cautious toward the zinc market outlook.
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