SMM Zn Survey: Output at Domestic Zinc Smelters Expected to Fall in January

SHANGHAI, Feb. 8 (SMM) -- A recent SMM survey of 39 zinc smelters (total capacity: 4.715 million mt/yr; idled capacity: 120 kt/yr) revealed the following insights:

1) Operating Rates

According to the survey, output at the 39 zinc smelters during January was 319.8 kt, with an average operating rate of 83.5%.  Operating rates at smelters with capacity between 100-200 kt/yr (including 100 kt/yr and 200 kt/yr) were 90.9%, with a total output of 145 kt in January.  Operating rates at smelters with capacity greater than 200 kt/yr were 79.1%, with a total output of 114 kt in January.  Finally, operating rates at smelters with capacity of 20-100 kt/yr were 76.8% during January, with a total output of 61 kt.

SMM believes weather conditions were responsible for differences in operating rates at zinc smelters.  A limited number of zinc smelters in Yunnan, Guangxi, and Sichuan provinces were negatively affected by shortages of electric power due to the lack of rainfall needed for hydroelectric power generation, including Yunnan Luoping Zinc & Electricity Company (120 kt/yr), Yunnan Chihong Zinc & Germanium Company (160 kt/yr), Xichang Heli Zinc Company (60 kt/yr), Hechi Nanfang Non-ferrous Metal Smelt Company (80 kt/yr), etc.  As a result of the power shortages, operating rates at medium and small smelters with capacity less than 200 kt/yr were relatively low.

2) Raw Material and Zinc Ingot Inventories

According to the SMM survey, virtually all smelters say raw material supply is sufficient, with  raw material inventories held by some smelters able to meet 2-3 months production needs.

Zinc prices have experienced significant changes from December 2009 to January 2010, with prices plunging to RMB 17,000/mt from a high of RMB 22,000/mt since January 6th.  In response, zinc smelters cut volumes and frequency of deliveries.  Meanwhile, transportation bottlenecks caused by passenger traffic around the Chinese New Year holiday also helped increase zinc inventories at smelters.

The survey reveals that only 18% of smelters say they have little or no inventories, while the remaining 82% of smelters say zinc inventories are relatively high.  This 82% is up significantly to SMM’s survey in December 2009.  SMM predicts zinc ingot inventories will grow  by 50-100 kt after the Chinese New Year holiday since zinc smelters will continue normal operations during the holiday.

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