SHANGHAI, Feb 28 (SMM) -- A recent SMM survey of 40 domestic primary lead smelters (capacity: 3.64 million mt/yr) revealed the following insights:

1) Operating Rates Down Slightly in January
According to SMM survey, the average operating rate at the surveyed producers (capacity: 3.64 million mt/yr) was 63.86% in January, down 4.68% from December. The January survey included two new companies: Luoyang Yongning Gold and Lead Smelt Company and Chenzhou City Jingui Sliver Company, each of which has a designed annual capacity of 80 kt/yr. The survey also included new expanded capacity from existing producers. Since production at new capacity was not stable during January, total output of refined lead was limited and overall operating rates were lower.

Operating rates at medium-size smelters with capacities between 50-100 kt/yr suffered significant declines during January, down 5.8% from December. Among these companies, some smelters in Hunan and Yunnan provinces were affected by intermittent electricity supply shortages, resulting in lower refined lead output. Some others were closed early for the Chinese New Year holiday, causing operating rates to fall. In addition, tight raw material supplies also lowered operating rates.

2) SHFE Lead Futures Trading Approved, Smelters Hold Cautious Long Sentiment
Rumors in the market that China would launch a lead futures market had been heard since late 2009, but did not materialize until late 2010 due to volatile lead prices and a weak global economy. Recently, lead futures trading at the Shanghai Futures Exchange was formally approved, and market players unanimously believe domestic lead prices will now rise steadily, but most smelters are maintaining a cautious long sentiment.

Two reasons are believed behind smelters’ cautious long sentiment. First, downstream consumption, led by the automobile sector, is expected to weaken during 2011 in part due to China’s continuous tightening of credit. Despite the possibility of short-term spikes in prices due to the new SHFE lead futures market, longer-term domestic lead prices are expected to be more dependent upon actual supply and demand. Second, a surplus in global lead capacity and high inventories will also keep domestic lead prices from moving higher. Market players with a more cautious outlook predict the 2011 high will be around RMB 18,500/mt, while optimists expect domestic lead prices to rise to between RMB 20,000-22,000/mt.

3) Smelters Prefer Domestic Lead Concentrate
TC for imported lead concentrate during 2010 remained relatively low, while lead concentrate prices were high, so most lead smelters preferred to use domestic lead concentrate. Supply of raw materials varied by smelter, with smelters without self-owned mines experiencing raw material shortages, causing some to cut or even halt production. Smelters owning mines had abundant lead concentrate, but were still actively purchasing domestic concentrate from other mines. Most smelters purchasing imported concentrate told SMM that they only purchased on an as-needed basis, waiting for higher TC.

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