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SMM Zn Survey: Operating Rates at Zinc Smelters Fall Further in July
Aug 16, 2010 13:12CST

SHANGHAI, Aug. 16 (SMM) -- A recent SMM survey of 41 zinc smelters (total capacity 5.025 million mt/yr; idled capacity 80 kt/yr) revealed the following insights:

1) Operating Rates
According to the survey, output at the 41 zinc smelters during July was 282 kt, with the average operating rate lower for the third consecutive month, settling at 68.4% during July, a new low since March 2009.

Operating rates at larger smelters with capacity above 200 kt/yr increased by 1.3% during July, to 81.97%, while operating rates at smelters with capacity between 100-200 kt/yr (including 100 kt/yr and 200 kt/yr) were 62.51%, down 4.63% MoM.  Operating rates at smelters with capacity between 20-100 kt/yr fell by nearly 2%, to 55.6%.

2) Raw Material Inventories
According to the survey, 35% of smelters say raw material supply is very tight. This number of smelters was significantly lower compared with June survey results.  62% of smelters say raw material inventories are normal, which is helping limit the decline in operating rates at zinc smelters.  Only 3% of smelters say availability of domestic and imported raw materials is sufficient.

3) Market Outlook
SHFE zinc prices rose to RMB 16,000/mt during July, up from RMB 14,500/mt.  The survey revealed 33% of smelters were optimistic toward zinc prices, and this number is up 19% compared with the June survey, and due to rising spot zinc prices, improving market demand, and steady declines in zinc stocks.

SHFE zinc prices have moved higher since mid-July, and then struggled at the RMB 17,000/mt mark, resulting in 37% of smelters expressing uncertainty about future zinc prices. Zinc prices began to undergo downward corrections last week, and whether or not zinc prices will experience significant declines and market demand will recover in the foreseeable future  remains uncertain, keeping smelters on the sidelines.

The remaining 30% of smelters were pessimistic toward market outlook, and they believe there is little chance zinc prices will climb further.  Meanwhile, zinc supply still remains in surplus, and speculative buying will likely weaken due to cash flow pressures.  As a result, zinc prices should move lower in short term.


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