China's 2007 zinc demand to grow, set to resume exports: CHR...

China's 2007 zinc demand to grow, set to resume exports: CHR

Palm Springs, California (Platts)--27Feb2007
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."
--James O'Connell, [email protected]