China Zinc Treatment Fees Rise on Concentrate Supply

HONG KONG, June 17 -- Chinese smelters receive for processing imported spot zinc concentrates have risen by two-thirds since April, traders and smelter officials said on Tuesday.

    Increased TCs indicate a higher availability of zinc concentrate, and are likely to lead to higher refined zinc output that may pressure London Metal Exchange zinc prices.

    "The Chinese are not keen to talk on new import orders," a trader at an international trading firm said. "But a few tenders were out. If there is concentrate available, it is more than likely going to China."

    Spot zinc concentrate was offered to China at TCs of $130 per tonne versus around $80 in April.

    Chinese zinc smelters had increased orders for spot zinc concentrate imports in March-April as Chinese zinc prices were strong, supported by the 159,000-tonne purchase by the State Reserves Bureau.

    But rises in Chinese spot zinc prices have lagged behind LME this month, making imported concentrate priced off the LME less attractive versus domestic material, smelter officials said.

    "We may see TCs rising to $150-$160 soon," said an executive at Zhuzhou Smelter <600961.SS>, the country's top zinc producer with capacity of 500,000 tonnes a year.

    Firm domestic prices were encouraging miners in China to resume production, said a trading manager at Yuguang Gold and Lead <600531.SS>, the country's top lead producer and also operator of 200,000 tonnes of zinc smelting capacity. Chinese miners were paying smelters about 5,000 yuan per tonne for processing their concentrates versus about 4,000 yuan in April.

    Concentrate production surged 20.3 percent on the month to 252,700 tonnes of zinc in May, official data showed.

    "Most zinc smelters are running at full rates," thanks to sufficient concentrate supply, the trading manager at Yuguang said, although he cautioned that metal consumption was lagging behind the rise in supply.

    WEAK METAL DEMAND, HIGH STOCKS

    China's zinc consumption may fall nearly 2 percent on the year to 3.7 million tonnes this year, Antaike, a state-owned research group, predicts.

    China's zinc consumption rose 4.4 percent on the year in 2008 and 7.9 percent in 2007, according to Antaike.

    "Economic conditions would result in a fall this year," Liu Fan, an Antaike analyst said. She added that Beijing's stimulus packages were for infrastructure and that it would take years to see the full impact.

    The trading manager at Yuguang said consumption remained lukewarm, though the demand from galvanized steel mills, the top zinc users in China, had increased in May compared with the previous four months.

    But supply is increasing thanks to strong domestic output and huge imports.

    Refined zinc output surged 30 percent on the month in March due to smelters' restarting of idled capacity and stayed little changed in April-May, with May output at 335,500 tonnes.

    Strong Chinese prices drove up imports of refined zinc to 317,006 tonnes in the first four months of this year, more than 70 percent above the inflow in the whole of 2008.

    bout 500,000 tonnes of refined zinc, nearly two months of China's consumption, has been stored at private and public warehouses since May, smelter officials said, including 85,816 tonnes in Shanghai Futures Exchange warehouses as of June 11.

    (Source: Reuters)