WRAPUP 1-China Metals Output Hit by Power Cuts, Pollution

HONG KONG, Oct. 25 -- China has clamped down on power-intensive metals smelting in one of its major producing regions, while a separate lead and zinc smelter confirmed a pollution-related closure, pushing lead and zinc prices to multi-month highs on Friday.

The world's top lead, zinc and aluminum producer has been cutting power to smelters in an attempt to meet energy efficiency targets by the end of the year.

Henan province, the country's top aluminum and also a major lead and zinc producing region, forced many metals producers to pare back output in October, smelter officials said on Friday.

In Guangdong province, Shenzhen Zhongjin Lingnan Nonfemet (000060.SZ: Quote), China's third-largest zinc producer, said it had closed its Shaoguan lead and zinc smelter completely on Oct. 21 to comply with a pollution investigation.

London Metal Exchange lead futures CMPB3 rose to a nine-month high of $2,519 a tonne, while zinc CMZN3 hit its highest since April at $2,525 a tonne.

"The closure story is definitely pushing zinc and lead prices today. The influence on the market will depend on how long the closure will be," said Lin Yuhui, deputy general manager of Jinhui Futures.

More than 750,000 tonnes of refined lead annual capacity, about 15 percent of the country's operating capacity based on official output data in September, has been closed this month.

More than 300,000 tonnes of annual zinc capacity has been closed, near 5 percent of the total, smelter officials estimated.

The shutdowns are expected to extend to the end of this year, which could reduce China's output by 180,000 tonnes of refined lead and 75,000 tonnes of refined zinc, enough to push the global lead market into deficit this year.

The International Lead and Zinc Study Group has forecast the global market will be in a surplus of around 90,000 tonnes of refined lead and 233,000 tonnes of refined zinc.

The Shaoguan smelter has annual capacity of about 220,000 tonnes of zinc and 110,000 tonnes of lead, and is expected to stay shut for the rest of the year, according to Li You, analyst at Minmetals Star Futures in Shenzhen city.

In Henan, the provincial government asked city and county governments to cut power consumption in the fourth quarter, Liu Libin, vice-chairman of the Henan Nonferrous Metals Industry Association, said.

"Aluminum is the main target and the provincial government has ordered local smelters to cut by 180,000 tonnes in the fourth quarter. Closure of lead and zinc smelters depends on local governments," Liu said.

He said Henan had 1.3 million tonnes of lead capacity, 250,000 tonnes of zinc and 4.6 million tonnes of aluminum.

"Our refined lead production has fallen by 60 percent this month. We are only receiving 10 percent of the power that we need," said Tang Chenghe, chairman of Yubei Gold and Lead in Anyang city.

He added that the firm, which has 260,000 tonnes of refined lead annual capacity, may have to close completely in the near future.

"We estimate more than 50 percent of lead capacity in the province has closed," Tang said.

In Lingbao city, 200,000 tonnes of operating refined lead capacity a year has closed, an official whose 100,000-tonne-a-year lead smelter closed last week, said.

Henan Yuguang Gold and Lead, China's top lead producer, has reduced zinc production by 50 percent at its 200,000-tonne-a-year zinc smelter, said an industry source in Jiyuan city, where Yuguang is located.

Yuguang wanted to use limited power supplies to maintain its profitable lead production, which is under the listed firm's operation (600531.SS: Quote), he added. Zinc was under the parent.

ALUMINUM

Power-hungry aluminum smelters in Henan were a main target for the power cuts, smelter officials said.

Some 700,000 tonnes of aluminum capacity had already been closed in June due to then low prices.

Another 720,000 tonnes of capacity is expected to close this month to meet the provincial government's request, Liu said, who expected the province's aluminum output to cut by 500,000 tonnes to 3.5 million tonnes this year, from an earlier estimate of more than 4 million tonnes.

Jiaozuo Wanfang Aluminum (000612.SZ: Quote), controlled by Chalco (2600.HK: Quote) 601600.HK, had cut its smelting capacity by a third due to a shortage of electricity, the company said on Tuesday in a filing to the exchange.

The cut at the smelter, which has annual capacity of 420,000 tonnes, is expected to lead to an output reduction of 30,000 tonnes this year.

"We have closed 100,000 tonnes of annual aluminum capacity asked for by the government," an official at a 800,000 tonne a year aluminum producer said, adding that smelters had their scale of closures set by local governments.

He added that a nearby similar-size aluminum smelter had already closed down more than 100,000 tonnes of annual capacity.

But China is unlikely to have a deficit on the aluminum market this year given the local market had some one million tonnes of stocks in the third quarter.

The State Reserves Bureau will also sell 96,000 tonnes of aluminum stocks onto the market soon.