Snowfall in China May Curb Zinc Use, Cut Inventories, CBI Says

SHANGHAI, Jan. 11 -- Heavy snowfall in northern China, the world's largest metal consumer, is slowing the pace of building works and will curb usage of zinc, according to Shanghai-based commodities researcher CBI China Co.

The reduction in demand will probably offset any decline in output of the metal because of the weather, Monica Gao, an analyst at Shanghai Metals Market (SMM), a CBI China unit, said in an e-mailed report today. Zinc is used to galvanize steel.

China has limited electricity usage in some cities as the snow affected delivery of coal to power stations, raising concerns that output at smelters would be affected. Snowfall is forecast today for provinces including Shandong, Hebei, Jilin, Heilongjiang, Inner Mongolia and Xinjiang, the China Meteorological Administration said yesterday.

"As the weather worsens, construction activities have dropped, curbing demand for zinc," Gao wrote in the report. "As a result, the impact of the weather on the zinc market is limited" though production of the metal may also have been affected, she wrote.

High zinc prices in the fourth quarter also led smelters to increase inventories, which they could draw down on, she wrote.

Zinc futures in Shanghai slumped as much as 3.8 percent to 20,900 yuan ($3,061) a ton, the biggest percentage drop since September. It traded at 21,085 yuan at midday.

Henan Aluminum

Some aluminum smelters in China's Henan province, the largest producer in the nation, received notices from power suppliers to prepare for stoppages, CRU International Ltd. said yesterday. Aluminum production is electricity intensive.

Unless the deliveries of coal worsen, it's unlikely that the metal producers in Henan will have outages because many have their own power stations, SMM analyst Eric Zhang said in a separate report.

Delays in shipping the metal out to customers would also probably be limited to three days as the country prioritizes the shipment of coal and food, Zhang said.

China's Shanxi province, the nation's largest coal production base, is increasing output to meet rising demand since the start of December, the official Xinhua News Agency reported, citing Hou Wenjin, an official with the local coal bureau.

Shanxi's production of the fuel rose to a record of more than 60 million tons in December, with daily deliveries to other provinces rising more than 40 percent from a year earlier, Xinhua said.