Impact on Zinc Market from China's Move to Eliminate Inefficient Capacity

SHANGHAI, Aug. 10 (SMM) -- The Ministry of Industry and Information Technology (MIIT) announced on August 8th the list of companies required eliminating inefficient capacity in 18 industries, and the outdated capacity at these companies should be shut down by the end of September 2010. A total of 53 zinc smelters are involved, with the affected zinc capacity of 293.7 kt/yr, which accounts for 5% of China's total zinc capacity. SMM contacted with related companies at the first time, and finds out some common features of zinc smelters required phasing out inefficient capacity.

First, the scale of these zinc smelters is small. Zinc smelters involved in the closure program are all small, with average capacity of only 5.5 kt/yr, and these smelters fail to meet the requirements for lead and zinc industry that the capacity of single unit zinc smelting facility should reach 100 kt/yr or above.

Second, smelting technologies required to be phased out are outdated. The affected zinc smelters generally refine zinc through the pyro-metallurgical process with vertical retort furnace, muffle furnace, and other outdated zinc smelting technologies. China's Government previously issued the guidance catalogue for industrial structure adjustment, which stipulates that smelters who use muffle furnace, manger furnace, horizontal tank, or small vertical tank to conduct reduction smelting and then use simple condensing units to recycle zinc, or produce zinc or zinc oxide with other outdated technologies should be shut down immediately.

Third, most zinc smelting capacity required shutting down has already been idled for several years. 45 zinc smelters in Guizhou province are required to shut down this time, with the affected capacity totaling 192.7 kt/yr, which accounts for 65.61% of total capacity of 53 zinc smelters. SMM contacted with local smelters, and finds out most zinc smelters in Guizhou province have been offline. Data shows zinc output was only 12.7 kt in Guizhou province during 1H 2010. In addition, Huludao Zinc Smelter and Anhui Tongguan Non-ferrous Metals (Chizhou) Company have been idled for several years as well.

To sum up, any actual impact on domestic zinc supply from China's move to eliminate inefficient zinc capacity will be limited, but this news should have some positive effects on zinc market sentiment in the short term, and domestic spot zinc prices have jumped to above RMB 17,000/mt on August 9th. 

Copyright © SMM. All Rights Reserved

None of this material may be used for any commercial or public use in any forms or means, without the prior written consent of SMM. For reproduction issue, please contact us by email: service.en@smm.cn