Chinese zinc prices may rebound as mine output falls
By Polly Yam
HONG KONG, Aug 13 (Reuters) - Increased supplies have driven prices for spot refined zinc down more than 13 percent in the last six weeks in China, but industry officials say prices may rebound soon as miners' output falls.
Miners are trying to pay smelters lower processing fees, a move that would trim profits at Chinese zinc producers, such as Zhuzhou Smelter (600961.SS), Huludao Zinc (000751.SZ) and Yuguang Gold and Lead (600531.SS).
"We are selling less zinc concentrates," a sales manager at a mining firm in Sichuan said.
He said spot zinc prices were already below the cost of production at mines that dig low-grade ores, forcing miners to seek lower processing fees. Miners could chop output if their demands are unheeded.
The fees are given by miners to Chinese smelters and then deducted from the sales prices of concentrate, based on spot metal prices.
The Sichuan miner is trying to reduce processing fees to 6,500 yuan per tonne, from more than 7,000 yuan, the sales manager said.
The spot price for refined zinc has fallen below 14,000 yuan this week, with Shanghai contract prices <0#SZN:> reaching a lifetime low because of increased imports and expanded production in China, the world's top producer of the metal used in galvanizing steel for auto and construction industries.
Chinese prices also mirrored zinc prices on the London Metal Exchange MZN3, which have fallen more than 10 percent so far this month on increased supply.
Zinc output in China surged 16 percent in June from May, helped by a 15 percent rise in mine output.
But firms still imported 145 percent more refined zinc in June from a year earlier and more than double the inflow in the second quarter compared with the first quarter of this year.
Strict credit controls in China mean many companies are unable to get financing in yuan. However, dollar denominated-debt is easier to come by and some are willing to accept small losses by importing zinc and selling domestically to get cash.
Traders said imported zinc had been sold at discounts of about 100 yuan per tonne compared with prices of locally produced zinc, helping weigh on domestic prices despite large smelters reducing spot sales.
A trade manager at Yuguang Gold and Lead said the firm had stopped the sale of spot refined zinc this week due to low prices and low stocks of concentrate.
"It is harder to buy concentrates. Miners are not willing to sell," the manager said.
He added the firm's 100,000-tonne-a-year zinc smelter held zinc concentrate stocks for just one week of consumption versus the normal level of one month.
But Yuguang still began trial operations at another 100,000-tonne-a-year zinc facility last Friday and expected commercial production in late September.
The manager said the production of cadmium and sulphuric acid, by-products of zinc smelting, remained profitable in China and enabled the firm to offset low margins from the production of zinc. ($1=6.8584 yuan) (Editing by Ben Tan)
