Production Restrictions in southwest China Support Zinc Prices

SHANGHAI, Sep 22 (SMM) - The most-traded SHFE zinc rose 0.13% to settle at 22,790 yuan/mt. Spot quotations of SMM #0 zinc ingot averaged 22,900 yuan/mt on September 22, up 480 yuan/mt or 2.14% from early September.

Production in Guangxi and Jiangsu has cut output due to power rationing. The refined zinc output is expected to increase 11,800 mt on the month to 520,700 mt in September, but the output is likely to lower 2,000 mt compared with the original estimate. Some producers have been required to suspend production until the National Day holidays. 

Multiple smelters in Yunnan have received notices requiring them to cut production by about 20% to 30%. Such situation is likely to continue to the end of September or end-October. Some smelters that have not been restricted in production have reported that they are likely to cut output in the near future. The output of zinc ingots in Yunnan may be reduced at a frequency of 299-250 mt per day. 

Zinc ingot inventory has been declining since mid-March. The weekly inventory across the seven markets totalled 117,200 mt as of September 17, down 55.84% from March 15. The operating rates at downstream plants trended lower amid power rationing and the dual control of energy consumption, coupled with weak exports. Zinc prices are bearish on the whole, but the disturbance on the supply is likely to support it.