Madrid 10/05/2016 - China's zinc consumption will struggle in 2016 - contraction in the construction and infrastructure sectors will more than offset a boost from the automotive sector, CHR Metals analyst Claire Hassall said during the MB Zinc conference here.
Rising production costs have undermined orders in many export-oriented sectors, triggering output cuts and the wholesale closure of small and medium-size manufacturing businesses.
While China's industrial production growth was 6.1 percent in 2015, according to official data, this figure is at odds with output figures across a range of industrial products, Hassall said.
For instance, there was a year-on-year contraction in smelting equipment of 11.6 percent, plate glass at 8.6 percent, cement of 4.9 percent, crude steel at 2.3 percent and power production at 0.2 percent for 2015, according to official data.
There was no improvement in the first quarter of 2016 when industrial production growth slowed to 5.8 percent year-on-year, according to official figures. CHR Metals estimates it at 1.75 percent, however.
For example, there was a year-on-year contraction in railway engines of 49.2 percent, smelting equipment at 23.8 percent, crude steel of 3.2 percent and air conditioners at 2.0 percent.
"We think that the old model of rapid export growth and fixed asset investment, including in infrastructure, now looks very strained, particularly in the face of rising domestic debt levels and weak overseas demand," Hassall said.
There is considerable uncertainty about the second half of this year, with concerns about China's long-term prospects to re-emerge despite the boom in real estate where prices were up 19 percent in some tier-one and tier-two cities, she added.
But on the bright side, the automotive sector should prove supportive for zinc demand due to growth in domestic ownership and increased usage of galvanized sheet in car bodies in Chinese brands.
"We think that vehicle fleet will exceed 200 million by 2020 but fleet size may have peaked by 2030," she said. "Also, used car sales will start to outpace new car sales over the next few years."
(Edited by Mark Shaw)