SHANGHAI, Dec. 13 (SMM) --The SMM survey of 41 major domestic zinc smelters (total capacity: 5.125 million mt/yr; idle capacity 80 kt/yr) revealed the following insights:
1) Operating Rates down
The SMM survey of zinc smelters involved 41 domestic zinc smelters of different scale, but included all major smelters, and whose total output accounted for over 70% of China's total monthly zinc output according to the China Nonferrous Metals Industry Association (CNIA). Total capacity of enterprises surveyed was 5,125 kt, 80 kt of which was idle. Total output in November was 326.8 kt, down 6.3% from the 348.7 kt in the previous month. The average operating rate for the 41 smelters was 77.73%, down 5.2% from the previous month and the first decline during 2H 2010.
Operating rates at all sizes of smelters were down. The average operating rate at large smelters (with capacities above 200 kt/yr) were 77.14%, down 11.21% from October and the first monthly decline during 2H 2010. The decline was mainly a result of Zhongjin Lingnan Nonfemet Company suspending production and Shaanxi Hanzhong Zinc Industry Co., Ltd. cutting output. Zhongjin Lingnan suspended production at its Shaoguan and Danxia Smelters for the whole month of November, while Shaanxi Hanzhong cut output due to power restrictions and has not yet reached full capacity. Danxia Smelter restarted production in December, but Shaoguan Smelter is still shut down and unlikely to restart production soon. In this context, the average operating rate at large scale smelters will not improve in December.
Operating rates at medium-sized smelters fell during November, with an average rate for enterprises with capacities of 100-200 kt/yr (100, 200 kt/yr included) at 87.26%, down 2% from 89.32% in October. The major changes include the restart of full production at Yuguang Zinc Industry Company, which has cut zinc smelting output due to power restrictions since mid-October, but resumed full production in November. Xiangyun Feilong Nonferrous Metal Company, which relies heavily on overseas suppliers, cut production due to shortages of raw materials. Hechi Nanfang Nonferrous Metal Smelting (Group) Company has not yet restarted production, and its operating rate during November was only 50% in November, despite the easing of power restrictions in Guangxi province. However, some local enterprises in that province were also reporting power restrictions have become stricter since early December. Liuzhou Liyin Metal Materials Company with capacity of 100 kt/yr suspended production and conducted maintenance in November and has not yet restarted production.
The average operating rate at smaller smelters (with capacity of 20-100 kt/yr) was 58.05% in November, down 1% from October. The area with the greatest concentration of smaller smelters was Hunan, Guangxi and Sichuan provinces. A shortage of domestic ore in Hunan province continued, but some smelters were able to continue production with existing raw materials, but would be unable to maintain long-term production. Power restrictions in Guangxi province began easing in November and although availability of power continued to improve in December, enterprises still cut production. Integration at Sichuan Huidong Lead & Zinc Mine was in progress and all affected mines and smelters suspended production during the integration. The final decision whether or not the "Liangshan" brand will continue to exist will not be made until after the integration is completed. Elimination of outdated capacity in Guizhou province has been completed. Smaller enterprises with capacities of 20 kt/yr have been merged into enterprises with capacities of 50 kt/yr. However, these enterprises will not restart production until next year due to integration issues and fluctuating zinc prices.
Generally speaking, large scale smelters cut production due mainly to environmental protection factors, maintenance, and power restrictions. Operating rates at medium and small enterprises declined due mainly to price factors, as well as from power restrictions and maintenance. Since zinc prices have fallen sharply since mid-November, giving back gains from October, and continued to fluctuate in early December, smelters were unwilling to sell goods, preferring to suspend production to conduct maintenance.
2) Raw Material Supplies Tight
Of the 41 smelters surveyed, only 19.5% reported shortages of raw materials. But the extent of the shortages of zinc concentrate was from mild to extreme, Domestic ore supplies have become tighter since zinc smelting capacity has expanded over the past several years. In addition, domestic ore supply will become even less available given lower imported zinc concentrate volumes due to lower TC.
SMM believes domestic zinc concentrate availability varied by region and was a result of different distributors and new capacity. But zinc concentrate supply has improved from last year due to higher zinc prices, stimulating mines to aggressively produce and sell ore. . Smelters will take a cautious attitude given new monetary policies expected for 2011, as well as energy efficiency goals in the 12th Five-Year Plan. In this context, any changes in zinc concentrate supply and demand will be limited.
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