SRB to Buy 400,000 mt Lead & Zinc Over Next Three Years

BEIJING, May 12 -- China's State Reserve Bureau plans to purchase 400,000 tonnes of lead and zinc in the next three years to keep in line with the Chinese government's metals revitalization plans to control supplies.

    Although industry insiders in China believe SRB's lead, zinc purchase plans in the next three years should help stabilize domestic prices and support smelters production,an analyst said mere SRB purchase action could not fully solve the Chinese lead and zinc producers' financial problems stemming from weak domestic and overseas demand.

    The analyst said since SRB's zinc and lead purchases in the next three years are not for actual consumption, so an actual future increase in overseas and Chinese domestic lead, and zinc demand can have lasting positive impact on domestic lead and zinc prices.

    An official with Sichuan-based zinc producer Hongda Group said: "Future stability in Chinese lead and zinc prices will depend very much on a real increase in market demand, as well as whether the government could succeed in eliminating 600kt/yr of inefficient domestic lead and 400kt/yr of zinc smelting capacity by end 2009."

    According Chinese analysts, SRB's zinc purchases of 159,000 tonnes from smelters so far this year have already lifted domestic prices over the past few months.

    Chinese domestic zinc prices stood at RMB 12,75/mt down by RMB 200/mt from last Friday. In early 2009, local zinc prices were much lower at just around RMB 10,000/mt.

    A source reported "But due to a lack of improvement in Chinese domestic demand, as well as the forthcoming slack buying season, Chinese domestic zinc prices are expected to fall greatly by the third quarter of this year. The positive impact stemming from SRB's recent purchases have already ended. This, plus poor domestic demand for zinc and a recent surge in zinc imports by China on the price gap between LME and Chinese zinc price"

    The analyst added that "Chinese zinc prices have lately followed LME's downward movement."

    (Source: Platts)