Singapore 01/02/2016 - Robust zinc imports into China in the second half of last year are unlikely to continue in the first quarter of this year, market participants said.
China's refined zinc imports started to pick up in September last year, with imports increasing more than five-fold year-on-year to 94,434 tonnes in December, the highest monthly import level since May 2009.
This was largely due to arbitrage opportunities in the second half of last year - lower global zinc prices relative to Chinese domestic prices made it profitable for companies to import to sell locally.
The arbitrage window, however, has mostly been closed since mid-January, sources said.
"We are unlikely to see high levels of imports in the first quarter of this year. It has become unprofitable to import zinc now," a Shanghai-based zinc analyst said.
It is hard to predict if the imports will continue because this will depend on variables such as the exchange rate and domestic and global zinc prices, a Shanghai-based trader added.
If the LME zinc price stays around or moves above $1,600 per tonne, it will probably be hard to import into China, he estimated. But if the LME price falls to $1,500 or lower, imports could resume, provided the yuan- dollar exchange rate is also favourable, he added.
Three-month zinc LME price was last at $1,597.50 per tonne on Monday, down $25.50 on Friday's close.
Other than arbitrage opportunities, zinc imports into China had risen since September last year because Chinese domestic smelters and overseas suppliers reacted differently to falling zinc prices - Chinese producers made limited sales while overseas sellers sold at lower prices in the second half of last year.
"There was a bit of tightness in the Chinese market in the second half of last year after stocks were digested in the first half," a second Shanghai-based zinc analyst noted.
Market participants also imported zinc in anticipation of tighter supply after Glencore announced in October last year that that it will cut production by 500,000 tonnes.
Real demand, however, remains slow due to a lacklustre galvanised steel industry, which is unlikely to help boost zinc imports in the first quarter, sources added
And while Chinese zinc smelters recently reiterated their intention to carry out this year the production cuts they promised last year, further tightness may not be felt in the domestic market while industry participants continue to cast doubts on whether the cuts would materialise.
China's refined zinc imports fell 4.7 percent to 543,367 tonnes in the whole of 2015.
(Editing by Mark Shaw)