China Zinc Stocks Cross 500,000 mt in Aug, From 350,000 mt in Q1

HONG KONG, Aug. 10 -- China's total zinc stocks crossed 500,000 mt in August, up from an average 350,000 mt in the first quarter of this year, industry sources in China said Friday.
    
    Market analysts attributed the rise in local zinc inventories to higher imports due to market speculation, and on increased operations at domestic zinc plants in July and
August. 
     
    China imported 479,240 mt of refined zinc in H1 this year, up 593% year on year, custom figures showed. China produced 1.89 million mt of refined zinc in H1 this year, down 1.2% year on year. Major Chinese zinc plants kept operating rates at 90% in July and so far in August as well, up from 60-70% in Q1.

    The 500,000 mt of zinc inventory comprises over 400,000 mt stored at bonded and other warehouses in Guangdong and Zhejiang provinces, stocks at smelters, as well as those at the Shanghai Futures Exchange warehouse, according to Beijing Capital Futures. SHFE's zinc stocks reached 60,218 mt on July 31, up 1,676 mt from July 24.
     
    Chinese local zinc prices, which though higher than London Metal Exchange prices, have not reacted to the recent rise in the LME three-month zinc price, which crossed $1,900/mt a few days ago from $1,753/mt end July.
     
    Chinese local refined zinc price averaged Yuan 14,900/mt ($2,181/mt) Friday, down Yuan 50/mt from Thursday.
     
    A source with zinc producer Hongda Group in Sichuan said: "If domestic zinc stocks were lower, prices would have reached Yuan 16,000/mt or more as demand in summe

    However, Chinese analysts said zinc stocks might fall during the rest of 2009, due to a slowdown in imports in the second-half on a narrower price gap between Chinese local refined zinc prices and LME values.
     
    According to analysts profits from zinc imports hit Yuan 1,000/mt in January, but dipped to Yuan 150-300/mt in July as the arbitrage ratio fell.
     
    Also, an anticipated improvement in demand may help reduce zinc stocks over the next few months on the government's push for the construction and car sector.

    (Source: Platts)