Zinc

[Lone Clone]

China's 2007 zinc demand to grow, set to resume exports: CHR
28 February 2007
Source: Platts

http://metalsplace.com/metalsnews/?a=10455

Chinese zinc demand in 2007 is set to rise by almost double-digit figures, similar to growth figures seen in 2006, analyst Claire Hassall, of CHR Metals, told Platts on Tuesday.

Speaking on the sidelines of the American Zinc Association annual conference in Palm Springs, the UK-based analyst also suggested that the China's ability to export zinc in the short term would also increase on the back of domestic stockpiles. "The [zinc demand] figures for 2006 are in the region of 9.2% growth, although it is very difficult to put an exact figure on it. For 2007, I would think we're looking at 9.5% growth," she said, adding: "I would expect the 2008 number to be around the same." She did suggest that going forward this growth would slow.

Looking at supply, Hassall noted that China's exports would grow in the short term and this has already begun. During her presentation, the UK-based analyst indicated that Chinese exports grew in the second half of 2006 to 61,000 mt of refined zinc. The first half of 2006 saw net imports of 54,000 mt of refined material.

"Zinc demand in 2006 rose by 9.5% to 3.15 million mt with refined output up 15% to 3.19 million mt," she said, adding: "Mine production rose by 12.5% to 2.87 million mt." Concentrate imports to China also rose in 2006, by a staggering 47% the analyst said, to 400,000 mt contained in zinc. Imports of ore in concentrate in the first half amounted to 284,000 mt, while in the second half, imports rose to 554,000 mt. "We are also forecasting a large increase in 2007," she said.

However, Hassall did not qualify this number, but noted that China would be in a position to become a net exporter of zinc again. "I expect China to increase its refined zinc output. Outside China, the zinc smelting capacity is not sufficient to treat all the new concentrate coming onto the market," she said, adding: "China is likely to increase imports of concentrate, perhaps dramatically. This means that it will be able to export zinc, in fact it is happening already."

The UK-based analyst also noted that between June 2005 and by the end of 2008 some 880,000 mt of new smelter capacity will be available to the market.

Hassall also concluded that despite forecasting 2007 headline industrial production growth at 13% and across all industry at 10% – lower figures than those seen in 2006 – "Chinese zinc demand is set to grow but in the longer term will probably slow as infrastructural projects are completed."

Regarding the price differential between China's domestic and the London Metal Exchange price levels, Hassall indicated that "there is no guarantee that the introduction of a zinc futures contract on the Shanghai Futures Exchange will speed up the alignment of the LME and the domestic price." She also noted that this differential "is the main reason that will determine exports or imports. If the LME offers a better price then zinc will be exported, and if the domestic price is better then the opposite will apply."

The analyst also noted that a current feature of the Chinese zinc industry was the growing emergence of economies of scale. "We are starting to see economies of scale with larger mines and mills meaning better quality concentrate, an important factor but one difficult to quantify," she said, adding: "We are also seeing vertical integration taking place with mines investing in smelters and vise versa."