SHANGHAI, Sept. 19 (SMM) -- A recent SMM survey of 42 zinc smelters (total capacity 5.095 million mt/yr; idled capacity 60 kt/yr) revealed the following insights:
1) Operating Rates
According to the survey, output at the 42 zinc smelters during August was 330 kt, up 48 kt from July levels. The average operating rate rebounded to 78.65% after falling for three consecutive months, and was up approximately 10% compared with July levels.
Operating rates at larger smelters with capacities above 200 kt/yr increased by 2.3% during August, while operating rates at medium-size smelters with capacities between 100-200 kt/yr (including 100 kt/yr and 200 kt/yr) increased by 22% during August. Total output at the medium-size smelters was up 33 kt compared with July levels and accounted for 68.8% of the 48 kt of additional output during August. Operating rates at smaller smelters with capacities between 20-100 kt/yr in August increased by 2.5% compared with July levels.
Operating rates at all 42 zinc smelters were up in August, especially at medium-size smelters. As zinc smelters completed unit maintenance and as zinc prices continued to rise, zinc output grew. Operating rates at medium-size smelters posted higher growth. For example, the operating rate at Hechi Nanfang Non-ferrous Metal Smelt Company increased to 100% in August, up from 50% in July, due to completion of maintenance. The operating rate at Baiyin Nonferrous Metals Company also increased from 30% in July to 70% in August after maintenance. Although operations at Baiyin Nonferrous Metals Company's mine were affected by recent mudslides, the effect on operations of the company's zinc smelter was limited since the company consumes 50% of outsourced zinc concentrates and 50% of self-produced concentrates, and had existing zinc concentrate inventories. The operating rate at Yunnan Luoping Zinc and Electricity Company was 70% in July due to power outages, but the company resumed full operations in August. Total additional output from the three companies reached 14 kt in August. In other news, Shaanxi Zinc Industry Group's Shangluo Smelter suspended production in July, but during August was running at 85% of capacity and produced 10 kt of zinc output. Additional output from these four companies accounted for 50% of the 48 kt of additional output during August.
Local governments took more stringent measures to conserve energy and cut emissions during September, and these actions have had a growing negative impact on zinc smelters, which are major energy consumers. As a result, zinc output in some provinces and regions will drop sharply, with operating rates at zinc smelters lower as well. The Guangxi provincial government has implemented strict power restrictions, and Guizhou, Inner Mongolia, and other provinces are also expected to carry out similar policies as the deadline approaches for energy savings and emission reduction targets for the 11th Five-Year Plan. In this context, operations of zinc smelters in high-energy-consuming provinces will face severe challenges.
2) Raw Material Inventories
Tight raw material supply experienced during June and July has eased in August. According to the survey, 22.5% of smelters say raw material supplies are still tight. The number of smelters with this view was down nearly 13% compared with July survey results of 35%. 75% of smelters say raw material supply is not tight, which is due to the movement of goods from mine operators once zinc prices rose. The remaining 2.5% of smelters say raw material supply is sufficient.
3) Market Outlook
Average SMM prices for #0 zinc were RMB 14,500/mt in June, increasing to RMB 15,200/mt in July, and later climbing to RMB 16,700/mt in August. The steady price gains allowed zinc smelters to become relatively optimistic toward the future market outlook. According to the survey, 39.5% of smelters were optimistic in August, up from 33% in July. Only 5.3% of smelters were pessimistic, and this number was down significantly compared with July survey results of 29.7% of smelters.
The survey reveals that 39.5% of smelters believe China's economic recovery is on track and property market measures will not greatly affect zinc markets. In addition, if the Shanghai Futures Exchange launches lead contracts by the end of 2010, lead prices will rise in response, which will help drive zinc prices higher. The possibility of higher demand in 4Q will also help support zinc prices. From the survey, 55.2% of smelters were uncertain about the future market outlook given current weak market fundamentals and strong market speculation. The remaining 5.3% of smelters believe zinc prices will fall in 4Q, as supply may exceed demand in 4Q following increases in zinc output.
Copyright © SMM. All Rights Reserved
None of this material may be used for any commercial or public use in any forms or means, without the prior written consent of SMM. For reproduction issue, please contact us by email: email@example.com