Exclusive: China's base metals output in March

SHANGHAI, Apr 8 (SMM) – This is a roundup of China's base metals output in March 2020, from an exclusive survey of key producers by SMM analysts.

Copper

China’s copper cathode output in March increased even as secondary copper production continued to contract due to the unfavourable price spread between copper cathode and copper scrap, in addition to copper scrap supply issues. The global outbreak of COVID-19 took a toll on copper scrap supply from Malaysia.

China produced 743,700 mt of copper cathode in March, 8.87% higher than February due to primary copper smelters returning to normal production and faster-than-expected resumption at smelters after maintenance. Besides, some of the copper smelters which are the local economic backbones maintained stable production in Q1 to offset the impact from COVID-19. However, output fell 0.98% from a year earlier.

As profits at SMEs contracted significantly in March amid significant declines in sulphuric acid prices, especially in north China, some of the smelters plan to conduct maintenance in the near term. Copper concentrate production and transportation were disrupted in late March due to the widespread of COVID-19 across Peru and Chile, and this could tighten copper raw material supply in May, affecting domestic copper output.

According to production schedules at smelters, domestic copper cathode output in April is estimated at 741,000 mt, 0.36% lower month on month but 4.88% higher year on year. Despite maintenance at many smelters, output will stabilise in light of new capacity and weaker impact from the pandemic.

Domestic copper cathode output in Q1 declined 2.46% year over year to 2.15 million mt, and year-to-date production through April is expected to stand at 2.89 million mt, a decline of 0.68% on the year.

Alumina

China’s alumina output totalled 5.67 million mt in March. This included 5.43 million mt of metallurgical-grade alumina, with the daily output down 1.75% month on month and 9.72% year on year to 175,300 mt. Some producers increased output slightly after raw material shortages eased, while producers in Shanxi province cut output in late February, resulting in lower daily output. 

SMM sees output of metallurgical-grade alumina at 5.26 million mt in April, with the daily output at 175,000 mt. As of early April, operating capacity of metallurgical-grade alumina increased to 64.28 million mt. Some high-capacity producers may face output cuts again as alumina prices have fallen over 400 yuan/mt from the high levels seen after Chinese New Year. SMM will closely monitor changes in bauxite costs and alumina prices to assess the potential impact on operating alumina capacity.      

Aluminium

China’s primary aluminium output rose 1.9% year on year to 3.04 million mt in March. As of the end of March, operating aluminium capacity declined 390,000 mt/year from the end of February to 36.21 million mt/year, while existing aluminium capacity stood at 41.23 million mt/year. Operating rates at smelters dropped 1.5 percentage points on a monthly basis to 87.8% as of March 31. From mid-March till now, there have been 10 smelters that undertook maintenance amid falling aluminium prices, with the amount of capacity under maintenance climbing to 655,000 mt/year. Losses in terms of cash costs prompted more smelters to cut output.

Aluminium output amounted to 8.98 million mt in Q1, up 4% from a year ago, while aluminium consumption fell 9% to 7.51 million mt. This caused aluminium inventories to rise steadily.

Aluminium output is expected to increase at a slower pace of 1% on a yearly basis to 2.92 million in April as the bearish outlook for aluminium prices may lead to greater output cuts and delay the commissioning of some of the new capacity in Yunnan, Inner Mongolia and Guangxi.   

Refined nickel

China’s production of refined nickel increased 16.03% on the month to 15,600 mt in March, to produce a year-over-year gain of 21.59%, showed an SMM survey.

A longer month and production recovery contributed to the month-on-month increase in refined nickel production. The smelter in Jilin has recovered to normal, with its capacity utilisation rate climbing back to levels seen the same period last year, while operations at smelters in Gansu and Xinjiang are also faring well.

Smelters in Shandong and Tianjin, however, remain in low gear, as a plunge in nickel prices in March has pushed them towards the verge of losses. The two smelters use imported intermediates as raw material, but sees no near-term impact to their production given existing stockpiles. The smelter in Guangxi keeps its refined nickel production line suspended, and is unlikely to resume it until the fourth quarter.

China’s refined nickel output for April is expected to dip 0.96% to 15,500 mt, as April is a shorter month as compared to March. Cost pressure at Chinese nickel smelters who use imported ore and intermediates as raw material is mounting, if nickel prices extend their decline and the COVID-19 crisis worsens.

Nickel pig iron (NPI)

Last month, output of NPI in China extended its downtrend that began since November 2019, decreasing 4.46% from March to 40,200 mt Ni, some 12.25% lower than the same month a year ago, showed SMM data.

The decline was propelled by high-grade materials, which saw production falling 5.47% on the month to 33,800 mt Ni, as losses, ore shortages and reduced demand forced smelters to trim or suspend production. Output of low-grade NPI increased 1.3% in March to 6,400 mt Ni.

Prices of high-grade NPI have fallen below costs across all producers in China, pushing producers into negative territory. Large part of mining operations in the Philippines have been suspended in response to the government’s COVID-19 containment measures, disrupting supply to Chinese consumers.
 

Nickel ore inventories at most of high-grade NPI producers in China have fallen to one to two months. Some producers suspended production after they ran out of nickel ore, and some scaled back operations or brought forward maintenance to counter raw material shortages as prices remained low.

Meanwhile, demand for high-grade NPI shrank, as stainless steel mills adjusted their consumption of raw materials including high-grade NPI and stainless steel scrap. Prices of stainless steel scrap have declined following losses in prices of pure nickel and stainless steel.

Output of low-grade NPI rose last month, as the shutdown of a producer caused by nickel ore depletion was offset by production resumption of a 200-series stainless steel mill and ramp-up of a stainless steel and low-grade NPI integrated mill.

Production of high-grade NPI in China is expected to continue to fall in April, decreasing 6.91% on the month to 31,500 mt Ni, while that of low-grade NPI will increase 4.39% to 6,700 mt Ni. That will bring the total NPI production to 38,200 mt Ni, down 5.11% from March.

Further depletion of nickel ore inventories and pessimism surrounding prices prompt high-grade NPI producers in China to deepen production cuts this month, while production recovery at some large-scale stainless steel and low-grade NPI integrated mills will boost production of low-grade NPI production. 

Nickel sulphate

China produced 47,800 mt of nickel sulphate in March, up 62.39% from a month ago but down 14.72% from a year ago. This included 42,200 mt of battery-grade nickel sulphate and 5,600 mt of electroplating-grade materials. Total output in March translated to 10,500 mt in Ni content.

The month-on-month increase was significant, as most of producers did not resume production until March. Strict virus containment measures deterred producers from recovering production in February, and operations at nickel sulphate producers and downstream consumers improved substantially in March after the outbreak in the country eased.

Demand for nickel sulphate in March has improved from a month earlier, but operating rates across nickel sulphate downstream consumers were lower than the same period last year.

SMM expects China’s nickel sulphate production to rise 6.24% on the month to 11,200 mt in Ni content in April.

Zinc

China’s zinc output rebounded last month, as smelters resumed production after being closed for raw material shortages or holidays in February. The production increase, however, was limited by new maintenance at some smelters in Inner Mongolia, Gansu and Qinghai.

The latest SMM survey showed that 464,200 mt of refined zinc was produced in China in March, up 2.48% from February and 2.67% from March 2019. Zinc capacity which was covered in the SMM survey remained unchanged at 6.09 million mt on an annualised basis.

Surveyed smelters produced 68,700 mt of zinc alloy last month, up 1.68% from the previous month, and hot-dipped material accounted for 48,500 mt.

China’s production of refined zinc is expected to continue to expand in April, increasing 15,900 mt from March to 480,100 mt, as smelters, especially those in Hunan, Inner Mongolia and Shaanxi, return online or ramp up production. 

However, concentrated maintenance at zinc smelters in China are likely to happen during May and June as ore supply tightens. Measures introduced to contain the spread of the coronavirus pandemic have led to the closure of a number of mines and smelters outside China, while zinc mines in China held back on sales due to concerns over prices and other factors. Low existing stockpiles added to concerns over raw material among Chinese zinc smelters.  

In China, treatment charges for domestic zinc concentrate with 50% Zn content fell to 5,800 yuan/mt of Zn content as of April 3, while TCs for imported materials slipped to $230/dmt. TCs for imported zinc concentrate were quoted as low as $200/dmt this week.

Lead

Primary lead output in China expanded significantly last month, as some large smelters recovered from maintenance and small and medium-scale smelters reopened after COVID-19 came under control in China.

China’s output of primary lead increased 11.94% from February to 240,000 mt in March, to produce a year-over-year decline of 7.03%, showed an SMM survey. Output in the first three months of 2020 was 6.13% lower than the same period the year before.

Maintenance at smelters including Hunan Yuteng, Yunnan Zhenxing and Henan Yuguang ended last month and production resumed. Smelters including Western Mining and Inner Mongolia Xing’an Silver & Lead, however, undertook maintenance, which partially offset the increase in overall primary lead production. 

Production of primary lead in China is expected to extend its increase in April, reaching 257,000 mt, as most of smelters maintain normal production and maintenance which was kicked off in March comes to an end.

However, tightening ore supply is likely to affect production of refined metal. Escalated virus containment measures outside China are disrupting ore flows to China, while domestic ore supply is being affected by seasonality. Mines at a high altitude, such as those in Inner Mongolia have yet to resume production.

China TCs for lead concentrate fell as a result. SMM assessed TCs for domestic lead concentrate with Pb 50% content at 2,000-2,400 yuan/mt of Pb content for April, down 200 yuan/mt of Pb content from March. TCs for imported materials with Pb 60% content, meanwhile, fell $20/dmt to $140-160/dmt.

Tin

Refined tin output stood at 12,000 mt in March, up 59.9% on the month, as the Chinese New Year holiday and COVID-19 affected production at smelters in February. With most of tin smelters resuming operations and imports of tin ore, refined tin output rose significantly in March.

Refined tin output is expected to shrink to 11,000 mt in April as tin mines in Myanmar kept relatively low operating rates and some smelters are likely to reduce output.