How were the Production Schedules of Zinc Downstream Companies Disturbed by Multiple Factors?

SHANGHAI, Dec 30 (SMM) - Social inventory accumulated as zinc prices fluctuated at high levels, coupled with environmental protection disruptions. SMM conducted a survey on the production schedules before the Chinese New Year holiday of downstream producers.

The production of galvanising plants in north China was poor due to the heating season and the Winter Olympics. Hebei and Tianjin have frequently been subject to suspension of production on environmental protection, greatly impacting the operating rates of galvanising plants. According to customers, small and medium-sized enterprises in Tangshan, Hebei, had few production days in December. Large galvanised pipe manufacturers also considered reducing the production or conducting maintenance from the end of December to January due to high finished product inventory. Some small and medium-sized enterprises suspended the production and took holiday in December as the Chinese New Year is earlier than 2020. The frequent environmental protection restrictions led to an increase in the production and staff costs. These small and medium-sized enterprises were less willing to operate as the profits declined further. Companies under operation reduced the purchase cycle amid the impact of the Winter Olympics, which can be reflected from the gradual increase in inventory in Tianjin. On the whole, small and medium-sized companies have more holidays from the end of December to the beginning of January. Large companies have ruled out the impact of the forced suspension of production during the Winter Olympics. Some companies have carried out their own production cuts or overhauls in early January.

The shipments of alloy plants were not high, which focused on funds collection and made transactions with customers adopting cash-settlement and old customers rather than those with payment days.  There are one-third of end customers who take holidays before New Year’s Day while the rest of them take holidays around January 10 due to the hidden worries of returning home from the pandemic. Besides, export orders declined on low season, raw material costs were at higher levels and the profits trended lower, weakening the production of the companies and also the pre-holiday restocking. Some alloy plants will also have holidays in mid-January.

Most of the zinc oxide enterprises are concentrated in Hebei, Shandong, Tianjin, Jiangsu and other places. Large-scale enterprises are mostly located in Shandong and Hebei. Zinc prices were at high levels. Galvanising enterprises lowered the operating rates, the prices of zinc slag were also at a high level, coupled with insufficient orders from terminal enterprises, pushing higher the finished product inventories. Therefore, the sales of zinc oxide plants weakened. The overall operating rates weakened as some companies in Shijiazhuang, Hebei have been under pressure from environmental protection and suspension of production. Small companies choose to take holidays directly, and medium and large-scale companies have holidays before and after mid-January. Due to the uncertainty of production restrictions during the Winter Olympics, some companies intended to increase the inventory of finished products from the end of December to January in order to deliver timely goods to long-term customers after the suspension of production.