Higher Average Zinc Prices Support Growth of Zinc Production

SHANGHAI, July 20 (SMM) -- China's output of zinc and zinc concentrate experienced dramatic year-on-year growth in 1H due mainly to much higher average zinc prices in 1H than the same period of 2009.

According to figures from China's National Bureau of Statistics, China's zinc output was 425 kt duirng June, down 5.8% MoM, with YTD output of 2.477 million mt, up 30.4% YoY. China's output of zinc concentrate was 400 kt during June, up 17.6% MoM, with YTD output of 1.795 million mt, up 40.8% YoY.

Zinc output experienced significant year-on-year growth for two reasons. First, average zinc prices in 1H were much higher than the same period of 2009, with average prices for #0 zinc at RMB 17,448/mt from January to June, up 47% compared with 2009 levels of RMB 11,872/mt. The signficant growth in zinc prices helped boost zinc production. Second, the low base of comparison in 2009 also contributed to the high year-on-year growth.

Aveage TC of zinc concentrate was RMB 4,603/mt in 1H 2009, with prices for domestic zinc concentrate (48-55%) at RMB 7,666/mt, but average TC of zinc concentrate has risen to RMB 5,748/mt in 1H 2010, with prices for domestic zinc concentrate at RMB 11,700/mt, indicating lead-zinc ore miners maintained higher production sentiment in 2010. As a result, output of zinc concentrate posted a year-on-year growth of over 40%.

Although zinc prices increased significantly on a yearly basis, zinc market sentiment was bearish. Zinc prices fell rapidly from RMB 18,000/mt early May to RMB 13,500/mt early June, and the wild price changes depressed market sentiment. According to SMM sources, zinc smelters generally conducted unit maintenance or cut production since June, and zinc consumption will enter the seasonal low demand period as well, so SMM predicts domestic zinc market will be relatively weak in 3Q.

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