52billion rail infrastructurebudget boost zinc

China's bigger rail investment may boost zinc, steel demand

* Higher rail investment to benefit zinc galvanized steel

* Zinc demand still limited by China's economic slowdown

* Zinc consumption may reach 2.9 mln T in H2 - analyst

By Polly Yam

HONG KONG, Aug 21 (Reuters) - China's refined zinc consumption is set to rise for the rest of 2013, buoyed by Beijing's plan to boost rail investment as well as seasonal demand, aiding embattled domestic producers and keeping zinc imports at strong levels.

China's domestic demand growth for zinc has moderated so far this year, analysts and sources at smelters said, hurt by the country's economic slowdown and Beijing's efforts to rein in the property sector.

Domestic spot zinc prices have been stuck well below the highs of 2010 and 2011, but remain above international levels as some large smelters have cut sales to prop up the market, prompting strong levels of imports for financing deals.

Pro-growth policies outlined in recent weeks to support the economy, including infrastructure projects and rail investment, have helped support metals, with steel prices up 25 percent since late May.

The government would step up rail investment and aims to exceed its 2013 investment plan, a report on the government website (www.gov.cn) said on Monday, confirming earlier reports of increased investment.

If the target is achieved, rail investment would rise to 343 billion yuan ($56 billion) in the second half of the year, from 187 billion yuan in the first half, Nomura said in a report on Monday.

Steel consumption is likely to benefit in the second half after demand rose about 5 percent in the first half of 2013, two Shanghai-based steel analysts said.

Galvanized steel, which accounts for about half of China's zinc consumption, is widely used in infrastructure projects such as power pylons, highway fences and railways.

Refined zinc consumption may reach up to 2.9 million tonnes in the second half of the year, from 2.6-2.7 million tonnes in the first half, said Fiona Liu, anlayst at information provider SMM, who sees demand at 5.5 million tonnes in 2013.

This included the seasonal increase in demand from September to December, when steel plants ramp up output after the summer break, boosting zinc consumption and supporting domestic prices.

China's production of galvanized steel plates and sheets rose 11 percent from a year earlier to 24.3 million tonnes in the first seven months of the year, official data showed.

Feng Juncong, chief zinc analyst at state-backed research firm, Beijing Antaike Information Development Co Ltd, said rail investment would be the driver for zinc consumption in the second half and could help improve sluggish demand.

Feng sees zinc consumption at 5.77 million tonnes in 2013, up 6.9 percent from 2012, when zinc use rose 3.8 percent.

IMPORTS STRONG

Zinc imports by the world's top consumer and producer rose 20 percent year-on-year in the first seven months of 2013 to 302,297 tonnes, with the bulk used for financing deals.

Zinc has fallen about 4 percent so far this year on the London Metal Exchange, although it still the best performer among base metals.

Domestic spot refined zinc prices ZN-0-SHMET are currently around 15,100 yuan per tonne, down about 4 percent from the year's high in February. But domestic prices have mainly held above import costs in the past five months, boosting financing imports, traders said.

Lukewarm demand and low prices for spot refined zinc have prompted some small zinc smelters to close and larger smelters to curb sales to support prices, sources at smelters said.

Some smelters held high stocks of refined zinc, one of the sources said. China may hold about 1.5 million tonnes of refined zinc stocks, SMM's Liu SMM estimated, equivalent to about 3 months production in China based on July's output.

($1 = 6.1246 Chinese yuan) (Reporting by Polly Yam; Additional reporting by Ruby Lian in SHANGHAI; Editing by Richard Pullin)