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

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SHANGHAI, Aug. 10 (SMM) -- China's Ministry of Industry and Information Technology released the name list of companies in 18 industries required to shut outdated manufacturing capacity by the end of September. There are 17 lead companies involved, with total affected capacity of 265.8kt. SMM has contacted with the affected companies immediately after the releasing of this news, and found that impact from outdated capacity elimination has limited impact on lead supply.
The affected 265.8kt capacity only accounts for 6.6% of China's total lead capacity, which is only a small proportion. Companies with larger affected capacities said that they had already eliminated outdated capacity and replaced them with updated production line meeting environmental protection standards, so this time outdated capacity elimination will not affect their production line and capacity. For example, 20kt of backward capacities required to be eliminated from Anhui Tongguan Non-ferrous Metals (Chizhou) Co., Ltd, 50kt of backward capacities required to be eliminated from Yunnan Chihong Zinc&amp;Germanium Co., Ltd and the 30kt of backward capacities required to be eliminated from Hunan Guiyang Yingxing Nonferrous Smelting Co., Ltd have already been replaced with updated capacities.
However, situation is different at smelters in Guizhou province. Outdated capacities required to be eliminated from Smelters with capacity below 10kt/yr are still in operation, and those smelters may be forced to halt production. Those involved smelters in Guizhou don't have any plan to continue production by updating their production line. Those smelters have already received notice to eliminated outdated capacity, but whether the outdated capacity can be eliminated or not shall depend on implementation strength of this policy. However, as this part of affected capacity is only 32.8kt which accounts for very little of China's total lead capacity, its impact will be very limited on actual lead supply.
In summary, China's lead supply will not reduce significantly from outdated capacity elimination, but downstream purchasing sentiment is boosted to certain extent from this news. As this piece of news is positive for base metal market, market expects a possible price increase in the future. Therefore, overall trading sentient was relatively brisk on August 9, and prices also advanced to RMB 16,500/mt.&nbsp;
 
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