China Zinc Smelters Seek Concentrates Price Clause

LANZHOU, Sept. 10 -- Large Chinese zinc smelters that import concentrates under yearly contracts are asking overseas suppliers to resume a price participation (PP) clause for shipments next year, smelter officials said on Wednesday.

    They said that otherwise smelters may not commit to those imports.

    Zinc smelters in China, which is the world's top zinc metal producer and mines less of the concentrates than it needs, face volatile London Metal Exchange zinc prices MZN3 next year. These would make their term concentrate imports risky without the clause, they said.

    "The PP is good for sellers and buyers," said Wang Jianjun, the head of international trade at Zhuzhou Smelter (600961.SS), China's top zinc producer, which will import 100,000-200,000 tonnes of zinc in concentrate this year. About 60 percent of those imports are under yearly contracts.

    "Smelters in other countries have PP," Wang said.

    "If we cannot get the PP in the agenda, we may not be going to yearly import talks," added Wang, who spoke to Reuters at the sidelines of a lead and zinc conference in Lanzhou city in Gansu province.

    Many smelters are meeting overseas suppliers of concentrate during the two-day annual gathering.

    Overseas miners had given Chinese smelters yearly treatment charges (TCs) with a PP clause until 2005 when the global concentrate supply was tight.

    The TC is the fee smelters receive for processing concentrates into metal.

    The clause includes an escalator, which raises the yearly TC when the zinc metal price rises above the agreed basis of a zinc price. It also carries a de-escalator, which reduces the TC when zinc price fall below the basis.

    Chinese smelters, including Zhuzhou and Yuguang Gold and Lead (600531.SS), are trying to regain the clause after zinc prices fell below their cost of production late last year and early this year.

    "Chinese smelters should not buy term imports without the PP given the price outlook is uncertain next year," said an international trade manager at a large zinc smelter, which imported 35-40 percent of its concentrate needs for its 200,000 tonnes of annual zinc capacity.

    Overseas sellers are not convinced.

    "All smelters have been talking about is PP this time," a trader at an international trading firm said.

    "Smelters would come to talk on yearly imports, even though they are saying that domestic supplies are rising.....It's a matter of terms."

    Spot zinc concentrate to China were offered at TCs of over $200 a tonne versus $190 a tonne last month, $130 in mid-June and around $80 in April, when Chinese smelters increased orders for spot concentrate imports due to strong domestic metal prices.

    (Source: Reuters)