Editor’s note: the 2012 (7th) Shanghai Lead & Zinc Summit ended amid the backdrop of weak lead and zinc prices as well as operating losses at smelters. Experts and scholars from around the world interacted and exchanged ideas with Chinese businesses during the meeting, discussing development of the lead and zinc industries as well as price trends.
◆ China Demand Cools
China GDP Sees Ladder-Type Slowdown in Transition
After entering a period of economic transition, China’s GDP will slow down. This has little to do with policy and is more the result of demographic changes which lead to changes in industry structures and slowdown in investment. Three characteristics that would appear during China's economic transformation: first, de-real estate; second, ladder-type GDP slowdown; third, China will continue to face inflationary pressure in the next two or three years.
China Rigid Demand will Drop Year by Year
China is now in economic transition and one of its important characteristics is the fall in internal demand, which will lead to irreversible decline in demand. In China's economic development, it is 25 years after its population peaked, for a long time in the future, China's rigid demand will decline year by year.
Metals May Step on Upward Track in June
In June this year, commodity markets including metals may bottom out and rebound. Analysis on China’s macroeconomic data in April indicates high possibility of interest rate cuts in the second half. As soon as emerging countries start monetary easing, commodity prices will enter an upward channel, and this scene is expected to show in June.
Commodities See Rally in Q3
Huang Weiping, Professor with Renmin University, predicted during the meeting the world economy will bottom out and rebound in the third quarter, when commodity prices will step on the upward track. In the third quarter, pessimism will be mostly digested and positive response will be reflected on prices of commodities.
Nonferrous Metals Industry May Revive in Q3
Under the influence of a weak global economy, non-ferrous metals prices will remain weak this year, and some industry even reported operating losses. According to Wang Pei, Deputy General Manager of Global Commodity Research with CEBM Group, now the Chinese premier minister referred to "stabilize growth" instead of “secure growth” in 2008, which has much different meanings. 2008 saw very poor employments data, and although China's economic growth dropped in the first quarter, employments were overall good, so as long as that is guaranteed, the government does not need to stimulate the economy quickly. Therefore, non-ferrous metals enterprises will have a difficult time in first half of Q3.
Dim Outlook on Nonferrous Metals as China Economic Strength Fades
While 2012 may be an OK year, China’s real problems will appear in 2013. "Dr Doom" Roubini believes that China may see a hard landing in 2013, and the possibility of China facing a banking crisis before the end of 2013 will reach 60%. For commodity movements, the US and Europe have big problems, but will improve during the second half and next year. China needs great strength if it wants to get out of the present predicament. China’s economic slowdown is bad for non-ferrous metals which will still face downside risks in 2013.
◆ Lead & Zinc Downstream Demand
Cao Guoqing: Lead Battery Sees 15% Demand Growth in 2012
Cao Guoqing, Deputy Secretary General of China Battery Industry Association, forecasts total lead battery demand growth to be about 15%, lead demand to reach 3.32 million mt and 1.93 million mt waste batteries to be produced in 2012. Lead demand will definitely grow; it is just a question of growing speed. By 2015, lead battery output is expected to reach 240 million KVAH, which will produce 4.2-4.7 million mt in lead demand. China produces more than 40% of the world’s lead batteries and its lead battery industry has a generally rosy outlook. But beginning in 2011, because of environmental factors, as well as the international economic situation, imports, exports of lead batteries fell, ending their long growth.
Three Major Lead Battery Demand Contributors
Lead batteries as renewable energy products boast high safety, low manufacturing costs and wide applications. Xu Hong, Battery Secretary-General of China Electrical Equipment Industry Association, introduced three major lead battery demand contributing sectors: auto, electric vehicle and pure electric vehicle. The auto market is expected to form during the "12th Five-Year Plan" period RMB 45 billion of demand. Another 5 billion will be contributed by transportation vehicles including golf cars and forklifts.
Logistics Growth Drives Lead Battery Demand
Cao Guoqing, Deputy Secretary General of China Battery Industry Association, said at the Shanghai lead and zinc summit as logistics traffic increases, logistics will gradually become a key downstream sector. Logistics growth this year would continue to drive lead battery demand. Compared with in auto, electric bicycle, motorcycle and communication substation sectors where intensive competition is commonplace, lead battery businesses have unstable market shares in the logistics sector, but this also means potential for future expansion. Future high speed trains, railway vehicles, urban rail transportation and engineering vehicles as well as planes and ships will contribute considerable lead battery demand.
Zinc Coated Steel Capacity Expansion May Be Limited, Weigh on Zinc Demand
More than 50% of zinc-coated steel sheets are used in the construction sector. In recent years, as home appliance and auto output increases, zinc coated steel consumption also increased in the two sectors, leading to rapid development of the zinc-coated steel industry. However, according to Zhang Qifu, Secretary General of Chinese Society for Corrosion and Protection, zinc coated steel capacity expansion may be limited, which may lead to a weaker zinc demand.
◆Lead & Zinc Price Trends
Lead Prices Expected to Improve 2H
SMM believes lead prices should turn around in 2H. That is because lead prices will drop limitedly due to cost support, and 2H is the seasonal high demand period for lead. LME lead prices should move between USD 18,500-23,000/mt, while domestic lead prices are expected to move between RMB 13,800-16,500/mt.
Zinc Prices Expected to Maintain Downward Track in 2H
What are zinc price trends during 2H? At the 2012 Shanghai Lead & Zinc Summit, both Citibank and INTL FCStone expressed pessimism. Citibank said zinc prices have remained low this year due to high inventories and ongoing Greece’s problems, and maintain downward track. Edward Meir, senior commodity analyst at INTL FCStone, added that the low end of price range will not be below the bottom hit late year.
Zinc Prices Expected to Move between RMB 14,000-17,000/mt in 2012
SMM believes zinc prices should resist both increases and declines in 2012. LME zinc prices should move between USD 1,800-2,200/mt, while domestic spot prices should move between RMB 14,000-17,000/mt.
Managers’ View Regarding Price Trends
Wang Yi, General Manager of Hunan Zhuye Torch Metals Import & Export Company said sluggish downstream consumption and high inventories will constrain zinc prices, with the high end of spot zinc price range expected to hit in October at RMB 16,000/mt. Prices will unlikely reach RMB 17,000/mt unless significantly positive news is reported. The bottom of price band will be around RMB 14,500/mt.
Wang Wen, General Manager of the Marketing Department of Zhongjin Lingnan Nonfemet Company, predicts that lead and zinc prices will fluctuate at low levels in 2Q, subject to stimulus policies implementation by the US. Spot lead prices will reach RMB 17,000/mt in 2012, with the high end in 2Q RMB 16,500/mt. Spot zinc prices will reach RMB 16,500/mt in 2012, and barely reach RMB 16,000/mt level in 2Q.
Qian Xuliang, Deputy General Manager of Shanghai Eagle Metal Company believes spot zinc prices should move between RMB 15,000-15,500/mt this year, continuing to fluctuate until September. Zinc prices will meet resistance at RMB 16,500-17,000/mt as smelters are expected to move goods aggressively. Zinc prices will bottom out in late May or June for the year, which is subject to whether Greece will exit the euro zone.
Zhou Longrui, Chief Executive Officer of Chilwee Power Company is pessimistic towards lead prices, seeing the average price around RMB 16,000/mt. Sluggish downstream demand will keep lead prices at low levels. The Environmental Protection Office decided to inspect lead battery producers three times this year, half of which will be forced out of the market. In this context, shrinking downstream demand will curb lead prices.
Chen Heming, General Manager of Hubei Jinyang Metallurgical Incorporated Company believes lead prices will be pessimistic in 2Q, fluctuating between RMB 15,000-16,000/mt, and will turn around in Q3 and 4Q. Lead prices were low in May in the past, and will be the most disappointing this year, with the average price RMB 16,000/mt this year.
Liu Fangmin, Deputy General Manager of Henan Zhicheng Gold and Lead Company lead battery consumption is weak, which account for 80% of lead demand, weighing down lead prices. In this context, lead prices will resist increases in 2012 and the high end of spot prices is expected around RMB 16,500/mt.
Liu Qiang, President of Sichuan Sihuan Electrolytic Zinc Company, said zinc prices will remain fluctuating this year, and will improve in 2H but modestly. Prices will reach RMB 16,000/mt by the end of September, with the major constraining factors anemic economy and slack downstream demand.
Yang Chunsheng, Vice General Manager of Luoyang Yongning Gold & Lead Smelting Company, believes spot lead prices should dip to RMB 15,000/mt, and will remain hovering at that level. Prices are pessimistic prior to the release of stimulus policies by Chinese government.
Fu Yi, Vice General Manager of Xiamen China-Lead Imp. & Exp. Company thinks domestic lead prices hovered below RMB 16,000/mt level in the first four months this year, and will remain fluctuating below that level in the remainder of the year. Affected by domestic and international negative economy, lead prices will likely hit a new low for the year at RMB 15,000/mt.
Yang Yinghui, General Manager of the Industrial Product Department of COFCO Futures Company, said that lead and zinc markets remained sluggish this year, but smelters which reported losses did not cut output significantly were holding goods, allowing lead and zinc prices to drop limitedly. In this context, LME zinc prices should bottom out at USD 1,800/mt, while domestic spot prices are expected to be RMB 14,200/mt.
Cai Dongcheng, Executive Director of the Financial Project Research Center of Shanghai Normal University, believes LME lead prices will stop falling in early June, with LME zinc prices also stopping declines later. LME lead and zinc prices fell limitedly in the past seven years. But as inventories hit a record high since 2005, lead and zinc prices will meet resistance, but are expected to reach the second highest level for the year in early August.