SMM Pb Survey: Operating Rate Down Significantly

SHANGHAI, Mar. 21 (SMM) -- A recent SMM survey of 40 domestic primary lead producers (total capacity: 3.64 million mt) revealed the following insights:

1) Operating Rate Down Significantly
According to the survey, the average operating rate in February at the surveyed producers was 57.07%, down by over 10% from a month earlier.  Output of refined lead at the 40 lead smelters was 173.1 kt, down 10.64% from a month earlier.  The significantly lower output during February was due to the Chinese New Year holiday, fewer days in the month, and from unit maintenace at some smelters.

Operating rates at lead smelters with capacity greater than 100 kt/yr or less than 50 kt/yr fell only slightly in February, while operating rates at medium-sized smelters with capacities between 50-100 kt/yr were down sharply.  Lingbao Xinling Lead Industry Company, Henan Zhicheng Gold and Lead Company, Guangxi Chengyuan Mining and Smelting Company, and Jiaozuo Oriental Gold and Lead Company are all medium sized smelters and conducted unit maintenance, lowering refined lead output by nearly 50% MoM.

2) Selling Interest Mixed
Most lead smelters in China were optimistic about the domestic market outlook following the approval on March 18th of China’s first lead futures market, but sales were mixed.  Some smelters preferred to restrict sales in the near term due to the high costs of imported lead concentrate and in anticipation of higher domestic lead prices after the opening of the lead futures market, or due to production cut after unit maintenance.  Others moved goods normally, possibly due to cash flow pressure or due to steadily rising domestic lead prices.

3) Market Confidence High, Domestic Lead Prices Expected to Rise
Market confidence has grown in response to the approval of lead futures trading in China, and lead spots were largely traded on March 18th at prices higher than SMM # 1 lead premiums. Domestic lead prices had fallen previously due to Middle East unrest and Japan’s  earthquake.  However, domestic lead prices rebounded later from the news of lead futures trading, as well as support from recently stronger LME lead prices.  In this context, most smelters believe domestic lead prices will rise in the short term.

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