SHANGHAI, Oct. 17 (SMM) -- A recent SMM survey of 40 domestic primary lead producers (total capacity: 3.64 million mt) in September revealed the following insights:
1) September Operating Rates Down to New Yearly Low of 56.31%
According to the survey, output of refined lead at the 40 primary lead producers was 170,800 mt in September and the average operating rate was 56.31%, down 5.73% on a monthly basis and a new low for 2011.
Also found in the survey was the fact that operating rates at all scale enterprises experienced significant declines in September due a number of factors. First, the SMM average price of #1 lead was RMB 16,339/mt in August, but fell to RMB 15,636/mt in September and depressed producer enthusiasm for production since prices were far below production costs. Yuguang Gold and Lead Company and Minshan Qian Non-ferrous Metals Company both completed unit maintenance in mid-September, cutting September output at these smelters. Meanwhile, small and medium enterprises, including Shanxi Non-ferrous Metals Company, Hanzhong Zinc Industry Company, and Huludao Zinc Industry Company also halted production due to sluggish prices. Second, plunging lead prices also negatively affected ore prices. Domestic mine operators were reluctant to move goods at low prices, with some smaller mines stopping production. No profits were available from imported ores, and supply shortages of domestic ores, resulting from mine operator unwillingness to move goods, negatively affected production at smelters, especially with small and medium lead smelters facing tight cash flow pressures. Third, silver, one major by-product of lead smelting, is also adding to production risks at lead smelters since silver prices were also down. Fourth, low water levels in Yunnan province restricted production at local producers, especially in Gejiu, where power outages from low water levels significantly cut into local production.
2) Negative Outlook Among 80% of Producers
The SMM survey showed major domestic lead smelters generally took a wait-and-see attitude leading up to China’s National Day holiday, with many unwilling to move goods. Almost 80% of the surveyed producers were also bearish towards the post-holiday outlook, but many were also forced to move goods due to heavy cash flow pressures.
Lead prices tumbled before the holiday, with LME lead prices briefly hitting a low last seen in July 2010, and with domestic lead prices far below production costs at lead smelters. LME lead prices, however, stabilized during the week leading up to the holiday and smelters were reluctant to move goods, waiting for a clear market direction after the holiday. During the week-long National Day holiday, LME lead prices continued to fluctuate, but nearly 80% of smelters were still negative towards the post-holiday outlook. Domestic smelters, however, made moderate sales last week due to cash flow pressures.