The Impact of Power Rationing on Zinc Industry Chain

SHANGHAI, Sep 29 (SMM) – The impacted regions: Yunnan, Hunan, Guangdong, Jiangsu, Zhejiang, Tianjin, Hebei, Shandong

Power rationing summary

Jiangsu: According to dual control plan of Xinghua City, all industrial enterprises must suspend production before 24:00 on September 16 and the power outage period will be extended until 24:00 on October 8.

Tianjin: Coal-fired power supply tightened amid the maintenance of generator sets in north China. There is a power gap in the Beijing-Tianjin-Tangshan power grid. According to the requirement of the Tianjin Industrial and Information Technology Bureau, local area has started orderly power consumption. Companies are required to suspend production from 9:00 to 13:00 and 14:00 to 22:00 on September 23. Sudden power outages caused by insufficient power supply may occur at any time during the above-mentioned time period. Manufacturers need to make preparations in advance and arrange staggered production.

The impact and analysis on the supply end

Multiple smelters in Yunnan have received notices requiring them to cut production by about 20%-30% from September 19, which is likely to continue until the end of September or October.

In Hunan, some plants are required to cut 20% of output and others even cut 50% of output, which is expected to extend to the end of September. Some smelters that fail to be subject to power rationing said that they may reduce output in later stages. Zinc ingot output in Hunan is likely to decline 350-400 mt/day.

Zinc ingot output in September is expected to be flat from August of 508,900 mt.

The impact and analysis on the operating rates of downstream producers

The production at downstream plants in Jiangsu, Zhejiang, Tianjin, Hebei and Shandong has also been affected by power rationing, but the situation and the affected time of period in these regions was different. The downstream industry features over-dispersion, thus, the decline in consumption of zinc ingots cannot be quantised. And the inventory changes in the near futures becomes an indicator for observing the supply and demand under the background of power rationing.

Company voice

Raw material prices and difficulty in procurement increased, ramping up the overall production costs.

Zinc price trend and market outlook analysis

The supply and demand were subject to power rationing and the social inventory accumulated again. SMM expects that there will be a period of continuous accumulation around the National Day holiday due to power rationing and ample raw material stocks at downstream plants, which is likely to suppress zinc prices. The fourth batch of government stockpiles remains as the market focus. The inventory remains the indicator of the supply and demand. The most-traded SHFE contracts prices are expected to stand at 22,500-23,300 yuan/mt this week.

Price change

The most-traded SHFE contracts prices rose 10% while LME zinc increased about 12% from early 2021 until now.