SMM Zn Survey: Operating Rates at Zinc Smelters Fall in May

SHANGHAI, June 7 (SMM) -- A recent SMM survey of 40 zinc smelters (total capacity 4.975 million mt/yr; idled capacity 80 kt/yr) revealed the following insights:

1) Operating Rates
According to the survey, output at the 40 zinc smelters during May was 339 kt, with the  average operating rate falling to 82.6%, down from April's 85.6%.

Operating rates at the 40 zinc smelters were down approximately 3% compared with April levels, with operating rates in May at smelters with capacity between 100-200 kt/yr (including 100 kt/yr and 200 kt/yr) experiencing the largest decline of 3.4%, to 83.2%. Operating rates at larger smelters with capacity above 200 kt/yr also declined in May to 88.5%.

There are two reasons behind the lower operating rates at zinc smelters during May.  First, zinc prices have fallen since early May, down from RMB 18,000/mt, to RMB 15,000/mt, causing smelters to suffer losses given the previous high zinc concentrate prices. In this context, some smelters decided to conduct annual maintenance ahead of schedule, contributing to declines in zinc output. Second, falling zinc prices further tightened supply of zinc concentrate throughout China. According to the SMM survey, 37.5% of smelters say raw materials are tight, with some smelters in southwest China cutting output as a result. However, smelters whose production was previously negatively affected by shortages of hydro-electric power have now generally resumed production.

2) Zinc Market Outlook
Zinc prices fell below RMB 15,000/mt last week, depressing market sentiment.  Most smelters expressed views on whether or not zinc prices would bottom out during 3Q, with only 22.5% of smelters showing optimism with regard to future zinc prices. This number was down sharply compared with the results of a SMM survey taken in April. In addition, 40% of smelters do not agree zinc prices will find support at the RMB 15,000/mt mark, believing instead that zinc prices will fall further in 3Q. The remaining 37.5% of smelters say they are uncertain about zinc price trends and prefer to adopt a more cautious attitude. In general, market sentiment was sluggish.

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