China Zinc Output to Hit Record in Q3

BEIJING, Aug. 7 -- China's refined zinc production may reach an all-time record in the third quarter following the startup of 300,000 tonnes of new annual capacity and greater use of existing capacity due to high prices, an analyst said on Friday.

    Rising output in China, the world's top zinc producer and consumer, could pressure London Metal Exchange prices, which have risen more than 50 percent this year.

    "Refined zinc output will rise to a record 400,000 tonnes level in the third quarter," an zinc analyst said. "High prices are encouraging smelters to produce."Official data showed refined zinc output reached an 11-month high of 366,700 tonnes in June. Since then, two new 100,000-tonne facilities have come on stream, and another 100,000-tonne of capacity is due this month.

    Zhongjin Lingnan Nonfemet, the country's third biggest zinc producer, has completed testing on a 100,000-tonne zinc facility in Guangdong province, a company source said. The startup will help the firm meet its output target of 385,000 tonnes of zinc and lead this year, versus 359,600 tonnes last year.

    Xinan Copper and Zinc Smelting started 100,000 tonnes of new zinc capacity in Inner Mongolia in July and Hanzhong Zinc Industry is expected to start production at a 100,000 tonne facility in Shaanxi province this month, industry sources said.

    Feng predicted China's refined zinc production to rise 7.7 percent to 4.2 million tonnes this year.

    But some output may end up sitting in warehouses as the growth of real consumption is expected to rise just 4 percent to 3.9 million tonnes, she said.

    Increased production and a six-fold increase in imports in the first half have already driven up domestic stocks.

    STOCKS

    About 700,000 tonnes of refined zinc are stored in warehouses, more than 2 months of Chinese consumption, the analyst estimated.

    The stocks included 102,269 tonnes at Shanghai Futures Exchange's warehouses as of July 30 and the State Reserves Bureau's holding of 159,000 tonnes it bought from smelters between late 2008 and early 2009, when smelters were struggling with weak demand and low prices.

    The analyst said she believed the SRB's refined zinc stocks were not a strategic stockpile and could be released back to the market if conditions changed.

    "Selling stocks will depend on credit policy given a lot of stocks are owned by merchants and investors and built due to loose credit," she said.

    "The SRB may also release the stocks if the market conditions are abnormal," she said, without defining what would be considered abnormal.

    (Source: Reuters)