FOCUS - Chinese zinc and lead conc imports to remain high in 2016 - BLC's Ying

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Archie Hunterarchie.hunter@fastmarkets.comDeputy Head of Physicals+44 (0) 20 7337 2143

London 02/02/2016 - Chinese zinc and lead concentrate imports will remain high in 2016 amid low stocks and growing domestic primary smelting capacity and despite slowing GDP growth, Shen Ying of BGRIMM Lilan Consultancy (BLC) said.

Total zinc production in China will rise 3.5 percent to 6.4 million tonnes in 2016, with primary output climbing 3.3 percent to 5.7 million tonnes and secondary up 5.4 percent at 745,000 tonnes, according to BLC estimates.

Demand is also set to rise but at a slower 2.4 percent to 6.8 million tonnes this year, leaving just a 400,000-tonne window for imports of refined metal.

"The demand market is struggling due to the slowing down of China's economic growth," Ying told FastMarkets in an interview on Monday.

Despite being the world's largest consumer of zinc by country, China smelts the bulk of the zinc it needs.

Last year, when annual treatment charges (TCs) for zinc concentrate were at $245 per tonne, the highest since 2010, imports increased 50 percent during the first 11 months of 2015 before falling 28 percent year on year in December when spot TCs started to drop sharply.

Total zinc concentrate imports were 1.5 million tonnes of contained metal last year but will struggle to match this in 2016, with TCs plummeting further to $135-150 per tonne currently.

While BLC sees imports falling 12 percent to 1.29 million tonnes this year, Chinese smelters are not in a position to refuse lower TCs, Ying said - low stocks of concentrate mean that smelters will have to buy.

"Accumulated stocks from smelters, traders and at ports in China [of zinc metal contained in concentrate] are currently at 1.2 million tonnes or 77 days of demand; that's not very high," Ying said.

Domestic mine supply of zinc and lead concentrates has also taken a hit while mines in China look to reduce or suspend production amid low Shanghai Futures Exchange (SHFE) prices.

"A lot of small zinc and lead mines in inner Mongolia and Hunan province have cut production due to low zinc and lead prices," Ying said.


LEAD ON THE UP

Falling domestic mine supply will lead to sharply higher lead concentrate imports in 2016, Ying said, with smelters also looking to increase primary production this year

Last year Chinese primary lead smelters were caught between falling prices and waning demand, with the moribund e-bike market no longer supportive of demand.

"Some primaries cut production to avoid big losses and last year primary lead production was down 6.6 percent to 2.9 million tonnes," Ying said.

But primary capacity should bounce back in 2016, with capacity ramp-ups and new capacity boosting output by eight percent to 3.2 million tonnes, according to BLC.

Secondary production will also increase, rising nine percent to 1.8 million tonnes this year to lift total refined lead production by 8.5 percent to 5 million tonnes. Demand is also due to improve amid renewed demand for lead acid batteries.

Refined lead demand fell five percent in 2015 to 4.9 million tonnes but will rise four percent this year, BLC predicts.

"We are starting to see increased demand for replacement batteries for vehicles and also stationary batteries for infrastructure and exports," Ying said.

BLC, formerly the research centre of state-owned Beijing General Research Institute of Mining and Metallurgy, was incorporated in 2014 and serves to consult the metals industry with insight into the Chinese market.


(Editing by Mark Shaw)



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