SMM Pb Output Data Analysis in January & February 2012

SHANGHAI, Mar. 31 (SMM) –

Lead Concentrate
According to data from the China Nonferrous Metals Industry Association (CNIA), China produced 186,700 mt of lead concentrate in January, up 70.2% YoY, but down 26.14% MoM. February lead concentrate output was 196,900 mt, up 108% YoY, and up 5.45% from the previous month. These results were significantly higher compared to last year, but still below the average output during 2H 2011. 

The price of lead concentrate is a major factor influencing mine operating rates. Domestic lead concentrate prices are calculated by subtracting TC from SMM #1 lead prices, and since TC is often stable, lead concentrate prices are largely dominated by lead price trends. Since September 2011, lead prices have been hovering around RMB 16,000/mt, keeping lead concentrate prices low and discouraging mine operators from increasing production. In addition, some mines suspended dressing processes in November 2011 and did not restart operations until mid-March 2012 due to cold weather and water shortages. SMM sources have also confirmed that these mines have not yet fully returned to normal operations. Last year, mines in Inner Mongolia contributed the greatest amount to China’s total annual lead concentrate output, but lead concentrate output in Inner Mongolia was down as much as 59.81% in January alone.

Strict environmental protection inspections in Hunan, Anhui, Jiangsu, and Hebei provinces are also restricting production at local mines in those areas. Lead concentrate output in Hunan and Anhui provinces recovered slightly in January, but down again in February by 28% and 16%, respectively.

Refined Lead
Data from the CNIA also showed China’s refined lead output during January and February was 575,900 mt, down for the two months and each individual month on a YoY basis.

China produced 266,900 mt of refined lead during January, down 23.9% YoY and down 38.55% MoM. February refined lead output was 309,000 mt, down 5.28% YoY, but up 15.76% from January. Primary lead output for January and February was 201,700 mt and 227,600 mt, respectively, and accounting for about 75% of total refined lead output in each month.

SMM believes the YoY declines in refined lead output during January and February were largely attributed to falling lead prices. The average prices for SMM #1 lead in January and February were RMB 15,473.33/mt and RMB 15,852.38/mt, respectively, while prices during  the same periods last year were RMB 16,535/mt and RMB 15,748.33/mt. Lead prices were down during January by about RMB 1,000/mt YoY.

Although lead smelters continue to expand capacity, lead prices have remained around RMB 16,000/mt since September 2011. Many domestic lead smelters have now cut output by conducting maintenance in response to current narrow profit margins. According to an SMM survey, average operating rates at primary lead smelters in January and February were only 56.32% and 52.42%, far below the 63.86% and 57.07% from the same periods in 2011.

Expansion of domestic lead smelting capacity has also increased demand for lead concentrate. However, an unfavorable Shanghai/LME lead price ratio over the past two months has allowed fewer opportunities for importing lead concentrate. Combined with the lower output in North China due to cold weather and Chinese New Year holiday, most smelters reported production was restricted by tight raw material supply.

Finally, lead-related enterprises have recently been the focus of environmental protection inspections. During 2012, the government has directed more inspections to the lead smelting industry, so many lead smelters, particularly secondary lead smelters, have been affected. According to an SMM survey of operating rates at secondary lead smelters, the average operating rate at secondary lead smelters was low during the first two months this year mainly due to the Chinese New Year holiday, with the average operating rate near 30% during January. Despite a modest recovery of production during February, output at secondary lead smelters was still restricted by environmental protection inspections. In this context, increases in secondary lead output were limited and the proportion of secondary lead to total refined lead output was actually declining. Given ongoing environmental protection inspections and renovations at enterprises, secondary lead output will not likely rise in the near term.