SHANGHAI, Dec. 27 (SMM) - Some Chinese zinc smelters will cut their production in the near term. Chihong Zn & Ge announced December 27 it will shut down some of its smelters, SMM reported. Hanzhong Zinc Industry planned to cut output by 25%, and Zhuzhou Smelter Group also plans to slash output in January 2017 by 5,000 tonnes.
Two reasons are attributable to the output cut, SMM reckons.
First, shrinking profit depressed smelter production, SMM said. TCs of domestic zinc concentrate (price to factory) fell from 6,000 yuan per tonne (zinc content) in December to 4,900 yuan per tonne (zinc content) at present. Real TCs are 4,400-4,800 yuan per tonne (zinc content, excluding profit from by-products). As zinc prices fell, profit at zinc smelters shrank sharply. Some smelters entered loss territory.
Second, raw material tightness affected smelters’ output, SMM added. Zinc concentrate imports decreased this year. Imports in the first eleven months of the year were 880,000 tonnes (zinc content), down 40.2% year-on-year. In the meantime, mines in North China suspended or cut output in the winter season. Mines in Chifeng, Inner Mongolia, Gansu and Xinjiang have already cut or halted production. Some mines in South China have met their annual production target and will also cease production before the 2017 Chinese New Year holiday. Shipments of ore resources from North China to South China will be disrupted due to rail transportation capacity shortages at the year’s end.
Zinc prices continued falling in late December. Arriving shipments decreased because of maintenance and output cut at zinc smelters. Combined zinc inventories in Shanghai and Guangdong continued falling. Those in Shanghai were below 90,000 tonnes, the lowest from March 2008. Spot premiums on #0 zinc expanded 20-70 yuan per tonne to 200-330 yuan per tonne December 27. An increasing number of bargain hunters entered the market, but some reported limited goods available, SMM reported.
Recent drop in zinc prices is due mainly to exodus of longs at the year’s end, SMM said. No negative macroeconomic news was heard. But output cut at smelters and support from spot premiums may help arrest zinc price declines, SMM added.
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