China earthquake impact on zinc depends on extent of mine damage
Singapore (Platts)--14May2008
The earthquake which devastated parts of China this week will have a long-term impact on the domestic zinc market should ore mining operations be badly affected, local sources told Platts Wednesday. "The main affected regions are in Sichuan, Shaanxi and Gansu. These have just a few bigger sized smelters, but a lot of mining operations for zinc. There were reports yesterday that some smelters were affected, but we doubt the impact will be much, as the actual output loss will be minimal," an official from Zhuzhou Smelter in Hunan province said. News reports Tuesday quoting Beijing Antaike sources said an estimated 400,000-500,000 mt/year of zinc smelting capacity had been affected by the earthquake, as numerous plants were shut down. An Antaike analyst confirmed Wednesday that the total capacity from all affected smelters, big and small, in the earthquake-hit regions is estimated around 400,000 mt/year. "But it is impossible for actual output loss to be that high, as the plants affected were not damaged. They were shut mainly due to power problems or for safety checks required by the government, so they will return to operations in the short term," the analyst said. "We expect most of them to resume within 1-2 weeks, so actual smelter output loss and its impact on the market overall this year will be minimal," he added. A China Minmetals trader agreed. "The impact on the market will depend on how long the plants are shut. Anything above one month will have more impact. If not, just 100,000-200,000 mt actual output loss overall will not have much effect on the market in the long term," he said.
ORE SUPPLY IMPACT UNCERTAIN, MUST WAIT AND SEE All the sources said ore supply was a bigger concern, compared with smelter issues. "There are a lot of mining operations in the affected areas and there could be mid- to long-term impact for smelters in China should supply be reduced. There's no definite news yet so we must wait and see," the Zhuzhou official said. "Tight feed supply will affect production of all smelters, even those unaffected by the earthquake," he added. The Minmetals official concurred. "Ore supply is more important to look at now as that would affect feed supply to all smelters. We have no confirmation now, just a lot of speculation, so we are still observing." The Antaike analyst said: "We called most of the smelter sources in the regions affected to check, but we can't reach the ore mining operations, so at the moment, there's still no way to tell how badly the miners were hit." He agreed that ore supply was a major concern that would likely impact zinc prices in the mid to long term. In the short term, the Antaike analyst expects zinc prices to continue firming as uncertainty prevailed. "Prices can hold within 1-2 weeks at least. But in the long term, they will likely fall again once the smelters return to normal," he said, but noted that if there was confirmation of serious damage to zinc mining operations, that would help support zinc prices in the long run. The analyst also noted that delivery issues were a concern as transportation will be affected by damages on roads and railways. "We are still trying to find out how much damage has been done to transportation that will affect deliveries to and from the zinc operations, that is also a major factor," he said. Official zinc prices on the London Metal Exchange closed at $2,289-2,289.50/mt for cash and $2,309-2,310/mt for three months on May 13, up from $2,158.50-2,159/mt for cash and $2,185-2,190/mt for three months on May 12. The nearest zinc contract for May on the Shanghai Futures Exchange closed at Yuan 18,620/mt ($2,668) Wednesday, up from Yuan 18,250/mt on Tuesday.
DONGLING SAYS PRODUCTION UNAFFECTED, HONGDA REPORTED SHUT Major smelters in the affected regions include Dongling Zinc in Shaanxi province, and Hongda Group in Sichuan province. Several smaller smelters in the Xichang region in Sichuan province, as well as some in the Chengzhou region in Gansu province were also affected, the Antaike analyst said. Market talk is that output at Dongling and Hongda were both affected by the earthquake. When contacted Wednesday, Dongling refuted the reports saying operations was normal for the group. "We only felt tremors here so there's no impact on production at all. We are producing as normal and still expect to reach about 250,000 mt zinc output this year as planned," a Dongling official said Wednesday. Dongling operates two smelters with a total capacity of about 260,000 mt/year. Hongda officials could not be reached Wednesday for comments, but the Antaike analyst said he confirmed with Hongda and Xichang smelter sources earlier that the plants had shut down temporarily. "Hongda's plant in Sichuan has been shut for safety checks, but the plant has not been damaged. It has a capacity to produce 80,000 mt/year of zinc ingot and about 100,000 mt/year of zinc alloy," the analyst said. "The Xichang smelters have about 40,000 mt/year zinc ingot capacity combined and they have shut due to power shortages," he added.
(20min delay)