[in-depth analysis] the problem of sulfuric acid transportation caused by transportation restriction will affect the start-up of smelting enterprises in the short term.

Background: since the fourth quarter of 2019, the problem of sulfuric acid expansion in copper, lead and zinc smelting has been circulating in the market, and there has been a lot of serious or not serious discussion. Today, SMM has slightly analyzed this qualitative problem, especially in the current transportation restrictions caused by the continuous intensification of hard bottlenecks? Smelting enterprises sulfuric acid inventory in the end how much? Has there been or is about to trigger a reduction in the production of the relevant metal smelters?

I. the pressure on sulphuric acid stocks has risen significantly since the fourth quarter of 2019.

The most effective way to monitor sulfuric acid inventory pressure is to count all sulfuric acid stocks by one family, but it is limited by the difficulty of investigation. SMM uses quantitative analysis of existing data to establish sulfuric acid inventory pressure index model. Through the correlation analysis between this index and sulfuric acid price, we can basically determine: due to the increase of domestic sulfuric acid production capacity release pressure, the domestic sulfuric acid inventory pressure has increased obviously since the fourth quarter. (SMM combines part of sulfuric acid production and chemical fertilizer production to obtain inventory pressure index, which fully reflects the supply and demand of sulfuric acid in the market).

II. Pressure on sulphuric acid inventory in North and Northwest China

From the point of view of the regional sulfuric acid inventory pressure index, North China and Northwest China have become the heavy disaster areas with the increase of sulfuric acid inventory pressure. Because the basic methodology of SMM sulfuric acid inventory pressure index is the comparison of sulfuric acid production and chemical fertilizer production, when the comparative value increases obviously, it shows that the inventory in this area is class library (surplus), while the Δ value continues to be regular, indicating that the area continues to accumulate in the pool.

Three. Rising production of copper, lead and zinc increases sulphuric acid inventory pressure in northern and western regions

According to the statistics of the new output and acid production increment of SMM copper, lead and zinc smelters in 2019, we find that the acid production increment of refineries in 2019 is mainly distributed in the north and northwest, which is also a part of the factors that aggravate the increase of sulfuric acid inventory pressure in these areas.

IV. The soft bottlenecks of sulphuric acid expansion for production vary from metal smelter to metal smelter.

The impact of sulphuric acid expansion on production in smelters needs to be divided into two dimensions: soft bottleneck and hard bottleneck.

For example, for the often heard statement that "sulfuric acid bulges, cannot be sold", most of them belong to soft bottlenecks, that is, the price of sulfuric acid and the profits produced by smelters; imagine that if the market price of sulfuric acid is A, how can refineries fail to sell 100 yuan below the market price, and how can they expand the pool? It's not good. 200 won't sell it?

The root of the soft bottleneck problem is the choice between the smelting profit and the loss caused by the expansion of the warehouse, that is, whether the smelting profit of the smelter can cover the loss caused by the low price of sulfuric acid.

Well, let's take a separate look at the smelting profits of copper, lead and zinc.

Looking at the above three pictures, it is not difficult to see. In fact, from the point of view of smelting profit (soft bottleneck), the problem of sulfuric acid expansion of copper seems to be more prominent. Under the shortage of copper supply, the SMM spot copper concentrate index remains low. For small and medium-sized smelters with a high proportion of copper, if the supply and demand of sulfuric acid continues to deteriorate and the loss continues, the output will decline or appear in 2020.

For lead and zinc smelters, the profit situation is relatively good, the so-called reservoir expansion problem, on the premise that transportation is not adjustable, but is willing to sacrifice part of the profit to ensure the production of lead ingots and zinc ingots. However, under the influence of the current epidemic situation, the existence of transport problems, resulting in the problem of short-term sulfuric acid storage is no longer a question of profit, but a problem of when the problem of sulfuric acid transportation can be solved.

V. the epidemic situation has a more significant impact on the expansion of zinc ingots.

The soft bottleneck we mentioned in the previous paragraph is profit-related, so the transport problem caused by the epidemic is that it has nothing to do with profit, and the price of sulfuric acid cannot be sold no matter how low it is (transport is blocked), and it has more to do with the region.

From the perspective of the area of sulfuric acid expansion and the direction of outward transportation, there are more sulfuric acid flows to Hubei, Hunan and other places in the north. According to the reaction of smelters in Shaanxi and Henan provinces, shipments in the direction of Hubei account for almost 90% of the enterprises. The control of transportation by the recent epidemic has caused the shortage of automobile transportation capacity, but Hubei is a place where external automobile transportation can not get into at all. Smelters can only watch their sulfuric acid stocks rise day by day, if the expansion does occur, production reduction may occur in February (some enterprises have reported that it has taken place). In this regard, SMM conducted a survey of smelters in areas with high sulfuric acid inventory pressure, and the feedback is as follows:

From the regional smelter investigation feedback, Shaanxi, Henan, part of Inner Mongolia smelter sulfuric acid backlog problem is more serious, the current available sulfuric acid storage capacity in the case of limited external transport support days is very limited, if Hubei continues to seal up the city, these areas smelters will have passive maintenance and production reduction in the short term; not to mention the impact of transport is not only sulfuric acid export problems, but also part of the raw material transport problems.

In general, SMM believes that for copper, sulfuric acid inventory pressure is more like a long-term problem, short-term logistics transport constraints (due to regional problems) the impact is not big for the time being, but more like a long-term profit problem; for lead and zinc smelting in the north, the risk of short-term reservoir expansion is greater.

Lu Jialong: 13761695913

Ye Jianhua (Chief Information Officer): 15021 503422

Li Dai Sheng (lead and Zinc Research Department): 17602185036