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Supply gaps to suppress gains in lead concentrate TCs in 2018Q4-2019Q1
Nov 5,2018 16:13CST
smm insight
Source:SMM
In 2018Q4-2019Q1, environmental probes, adverse weather and the Chinese New Year holiday would keep supplies in deficit

SHANGHAI, Nov 5 (SMM) – Treatment charges (TCs) for domestic lead concentrate are unlikely to see gains in the fourth quarter of 2018 and the first quarter of 2019 as environmental probes, adverse weather and the Chinese New Year holiday would keep supplies in deficit, SMM expects.

SMM expects a supply deficit of 267,800 mt in Pb content for 2018Q4 and of 287,700 mt in Pb content for 2019Q1 across China’s lead concentrate markets.

SMM data showed that China’s output of lead concentrate in 2018Q1 and 2017Q4 both stood lower than the same period in the previous year as some small and medium-sized miners shut permanently amid increasingly intensified environmental protection drives. Despite new capacity, environmental probes kept large miners from operating at full capacity. Besides, overexploitation lowered lead content of resources in Hunan.

SMM expects to see year-over-year declines in China’s lead concentrate output in 2018Q4-2019Q1.

The central authorities kicked off its second round of month-long environmental reviews across Shanxi, Liaoning, Jilin, Anhui, Shandong, Hubei, Hunan, Sichuan, Guizhou and Shaanxi provinces last week. Increasingly inclement weather at Inner Mongolia and Qinghai would impact operation across local miners and some would even suspend operation. Besides, some miners would cut capacity sharply during the Chinese New Year holiday in February.

While Chinese smelters used to disfavour seaborne lead concentrate due to low content of other valuable metals, they stepped up their procurement of imported materials this year due to tight supplies of domestic materials and as the SHFE/LME ratio kept an import arbitrage window open. With limited further expansion in supplies of seaborne materials, China’s imports of lead concentrate in 2018Q4-2019Q1 are unlikely to substantially grow from the previous quarters even as the SHFE/LME ratio further rises. SMM expects China’s imports of lead concentrate to stay largely flat with 2018Q3 in 2018Q4 and to inch up from a year ago in 2019Q1 due to the Chinese New Year break.

Meanwhile, a downtrend in consumption of lead concentrate is expected to linger into 2018Q4-2019Q1 as the environmental probes by the central authorities and winter production curbs would take a toll on operation at primary lead smelters.

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