SHANGHAI, Jan 5 (SMM) - In terms of operating rate, the monthly operating rates of domestic die-casting zinc alloy producers from October to December, 2022 are 43.73%, 43.76%, and 44.86%, respectively. The average operating rate in the final quarter of the year stands at 44.17%, which is 3.71 percentage points lower than the 47.88% in the third quarter. The decline can be explained from the following three aspects.
The first culprit is the covid-19 pandemic, which constrained the operation of enterprises. From the zero-Covid policy in October, to the surging infections in south China led by Guangdong province in November, and then to the sudden increase in infections nationwide after the abrupt drop of control measures in December, the production of enterprises was constantly disrupted. In south China and east China where the covid-19 ran rampant, the operation of enterprises was severely affected as over 60% of workers at most manufacturers were infected with the disease and unable to work.
Second, the persisting poor consumption weighed on the motivation of companies to produce. As the real estate sector remained in a downturn, the orders for lamps and bathrooms hardly improved. Export orders also posted a year-on-year decline amid weak macro environment.
The third reason is down to limited cash flow, which triggered a knock-on effect through the industry chain. When the sluggish consumption led to overcapacity of zinc alloy in the domestic market, terminal producers of structural parts had more bargaining power. At the same time, the end consumption slowed down, and structural parts producers found it difficult to increase their cash flow. This had a knock-on effect on the zinc alloy manufacturers, who often had to endure delayed payments and extended repayments of the former. However, zinc alloy enterprises also needed cash flow to purchase raw materials when faced with the difficulty to collect receivables. As a result, the conversion margins were narrowed, and the low profits imposed high financial pressure on the zinc alloy enterprises, who had no choice but to cut the production.
In terms of raw material inventory, the monthly raw material inventories from October to December 2022 are 6,341 mt, 6,571 mt, and 6,228 mt, respectively. The total raw material inventory in the fourth quarter stands at 6,368 mt, up 28.49% from the 4,956 mt in the previous quarter. The main reason for the quarter-on-quarter increase is attributed to the decline in zinc prices. According to related data, the spike in imported zinc concentrates in the fourth quarter boosted the TCs at home and abroad, which is still on the rise to date. The rising operating rates of smelters and growing supply are to blame for the falling zinc prices. Generally, die-casting zinc alloy enterprises restocked on dips, and their overall raw material inventory advanced. However, it is worth noting that although the inventory of raw materials increased slightly in the fourth quarter, it was still lower than that in the same period of the prior year. The root cause lied in the weakness of consumption, which resulted in low enthusiasm of enterprises to stock.
Naturally, the falling operating rates sent the finished product inventory on a downward path. Specifically, the monthly finished product inventories from October to December 2022 are 10,298 mt, 6,843 mt, and 8,740 mt, respectively. The total finished product inventory in the fourth quarter amounts to 8,635 mt, down 11.34% from the 9,740 mt in the previous quarter.
To sum up, the die-casting zinc alloy industry, as a critical part of the manufacturing industry, was inevitably impacted by the sluggish macro environment and the pandemic in the fourth quarter of 2022. In 2023, it is expected that the industry will see fresh development with the recovery of real estate sector.