[Zn] CBI Survey - Operating Rates at Domestic Smelters

SHANGHAI, May 11 (CBI China) -- A recent CBI survey of 36 zinc smelters (total capacity: 3.91 million mt/yr) revealed the following insights:

    1) Operating Rates

    According to the survey, output at the 36 zinc smelters during April was 258 kt, with an average operating rate of 79.0%, up 6.1% from March levels. Operating rates at smelters with capacity between 20-100kt/yr were 60.0%, up 10.6%.  Operating rates at smelters with capacity of 100-150kt/yr (including 100kt and 150kt) were 81.6%, up 10.8%, while operating rates at smelters with capacity greater than 150kt/yr were 88%, only up 1% compared to March. Several reasons were behind these changes.

    1. In April, operating rates at domestic smelters recorded no significant changes, and any upward room for operating rates at large-scale zinc smelters was limited. Baiyin Nonferrous Group resumed operations at full capacity, contributing to the 1% growth rate for smelters with capacity greater than 150kt/yr in April. CBI believes operations at large smelters will remain stable through the end of May.

    2. According to the survey, smelters with capacity less than 150kt/yr (including 150kt/yr) made the greatest contributions to the higher average operating rates. Although zinc prices failed to remain strong after tracking copper price rises in early April, the overall price range for domestic zinc has been raised, creating interest in increasing output from small and medium smelters. Chifeng Hongye Zinc Smelter (110kt/yr), Hongda Group Sichuan Factory (100kt/yr), Gansu Baohui Industry Company (60kt/yr), and Shanxing Stibum Industry Company (35kt/yr) all raised operating rates to 100% during April.

    According to CBI sources, the average domestic zinc price was RMB 12,548/mt during April, up 13.8% compared to March. Although most smelters were not very optimistic about future zinc prices, smelters have been able to turn a profit with zinc prices at RMB 12,500/mt. However, a portion of smelters failed to restart all idled capacity due to limited raw material supply.

    2) Raw Material Inventories

    Tight raw material supply remained a major problem for smelters since the financial crisis erupted in late 2008.  Zinc prices climbed to RMB 12,000-13,000/mt, from RMB 10,000/mt, due to the Chinese government’s stimulus plans, the gradual recovery in market sentiment since Chinese New Year, and from improved output from Chinese mine operators. However, the survey reveals the raw material supplies at smelters have made no significant improvements despite rising zinc prices. According to the survey, 61% of smelters, mainly smaller smelters, faced tight raw material problems, while the remaining 39% of smelters have stable raw material supplies from integrated mines, long-term supply contracts for domestic or imported ores.

    3) Zinc Inventories

    As the second round of national reserves (100kt of zinc) was completed at the end of April,  inventories at smelters were limited. 56% of smelters had some stocks on hand, while 44% were holding zero inventory.  Those smelters with no inventories were significantly higher than the number in March. Those smelters with reserve commitments accounted for 37.5% of the surveyed smelters, an indication the national reserve program is helping draw down smelter I inventories. However, CBI believes the actual zinc is not being consumed, but merely transported to other warehouses. In this context, zinc supply is still ample in markets in view of current high operating rates at smelters.

    4) Forecast of Zinc Price in 2Q

    According to the survey, 44% of smelters were pessimistic about the zinc price due to current weak zinc consumptions; 37% of smelters believe zinc price will hover in the RMB 12,500-13,500/mt range; the remaining smelters were optimistic about the zinc price in view of Central Government policy outlook.

    5) Newly Increased Projects

    According to the survey, smelters with new projects did not reveal specific time for completion of construction, and were cautious about their new capacity projects amid the current weak economic conditions. As of date, 590kt of new capacity will likely come online in 2009, and 320kt/yr of planned new capacity will be postponed to 2010.

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