SHANGHAI, June 11 -- Chinese smelters continued to ramp up metal production in May despite volatile global commodity prices on the back of uncertainty about sovereign debt problems in euro-zone economies.
Butmetal producers will be more cautious in bringing new capacity online in coming months, especially in anticipation of the usual summer lull, when regular maintenance is typically scheduled and when weather factors hinder the progress of outdoor projects, including infrastructure and property construction, analysts said.
"Another factor may be Beijing's further tightening of monetary measures (if inflation accelerates), and that will affect the possible expansion at downstream users," which may result in reduced demand for industrial metals, such as copper and zinc, said Ying Haoliang, an analyst with Orient Securities
China, the world's largest copper consumer, produced 398,000 metric tons of the metal in May, up 4.7% from the previous month, the National Bureau of Statistics said Friday. Copper production totaled 1.9 million tons in the January-May period, up 16% compared with the same period last year.
The slight on-month rise in copper production was within market expectations, due partly to solid demand in the metal's peak consumption season, analysts said.
"Home-appliance makers have had good bookings from their customers since the start of this year, so copper tube producers have been doing extremely well," which helped boost demand for the red metal, Shanghai Cifco Futures Wang Zhouyi said.
Operation rates at copper smelters averaged around 92% in May, while tube producers and cable makers were operating around 80% and 83% of capacity in May, respectively, according to data from the Shanghai Nonferrous Metals Network.
Despite still-strong output, zinc smelters, especially cost-conscious small and medium-sized ones, slowed operation slightly in response to falling zinc prices at home and abroad, to 82.6% from 85.6% in April, while prices fell by around 7% last month.
Aluminum output reached a record high at 1.42 million tons in May, up 3.7% on month and 44% on year, according to the statistics bureau's data.
"The figure is a little bit surprising given recent falling aluminum prices" that meant operating at a loss for some aluminum smelters, said Sun Lei, an analyst with Galaxy Securities Futures, who estimated the current production cost for average aluminum producers around CNY15,000-CNY15,500/ton.
Chinese aluminum producers continued manufacturing, even at a loss, since stopping or substantially reducing production can work against their medium-term interests, analysts said.
"Simply put, if you cut or stop production and then restart, the total cost is like building half an aluminum plant," Sun said.
But if aluminum prices continue to fall, smelters may postpone bringing new capacity online or even be forced to cut output, analysts said.
Industry participants estimated that new aluminum capacity this year may reach 2 million tons. Total output capacity last year was around 20.62 million tons.