High Inventories against Sluggish Consumption Will Keep Lead and Zinc Prices in Check

SHANGHAI, Mar. 26 (SMM) – Global overcapacity, sluggish consumption and high inventories are three major factors weighing down lead and zinc prices, according to Li Xiongzi, general manager of Zhuzhou Smelter Group during the 8th “Shanghai Copper & Aluminum Summit” on March 22.  

Mr Li said lead and zinc capacity is in surplus in both China and the rest of the world. China’s surplus lead capacity reached its peak at 450,000 mt/yr back in 2012. Surplus zinc capacity in China hit its record high at 880,200 mt/yr in 2009 before falling to 205,300 mt/yr in 2012.       

Lead inventories have been growing in LME and SHFE since 2008. At the end of 2012, lead inventories (in both trading markets and those held by producers and downstream producers) totaled 630,000 mt in western countries, with inventory consumption ratio at 3.6 weeks, against 852,800 mt in China, with inventory consumption ratio at 4 weeks, 

Zinc inventories are also growing steadily. At the end of last year, zinc inventories (in both trading markets and those held by producers and downstream producers) hit 1.38 million mt in western countries, with inventory consumption ratio at 8.1 weeks, compared with 1.89 million mt in China, with inventory consumption ratio at 8.8 weeks. On December 13, 2012, LME zinc inventories hit a record high of 1.23 million mt.

Demand for lead and zinc has dropped sharply over the past couple of years. China’s lead consumption was 4.2 million mt in 2012, with growth slowing to 4.9%, compared with an over 10% average growth during 2008-2010. China’s zinc consumption was 5.28 million mt in 2012, with growth also slowing to 1.5%

Overcapacity, sluggish consumption and high inventories in lead and zinc industries will extend into 2013, impeding any substantial uptick in lead and zinc prices.