FOCUS - Output data reflects diverse fortunes of Chinese copper, zinc smelters

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 26/05/2016 - The latest Chinese metals data published by the National Development and Reform Commission (NDRC) showing higher April copper output and lower zinc production reflects the different fortunes of Chinese copper and zinc smelters, market participants said.

China's refined copper production rose 11 percent year-on-year to 2.72 million tonnes in the first four months of the year, with output in April alone up 14.9 percent.

Although 10 major Chinese copper smelters had pledged to cut production by 350,000 tonnes this year, these plans have been put on hold in an improved market environment - copper prices recovered, treatment charges (TCs) remain profitable for smelters and demand is supportive, sources said.

"There has been little drive for copper smelters to cut production so far this year," a Beijing-based metals analyst said.

While one of the 10 smelters is believed to have cut production by seven percent in January-April, this was offset by output from new start-ups, the restart of some idled capacity and increased production from other smelters, a Shanghai-based metals analyst said.

A low base - smelters carried out maintenance during April-June last year - had also helped amplify the extent of growth in April, he noted.

“May Chinese copper production data might show even stronger growth," he said.

On the other hand, production of zinc decreased 1.1 percent year-on-year to 1.95 million tonnes in the first four months of the year compared with growth of 13.7 percent in the same period last year. In April alone, zinc output fell 2.5 percent year-on-year.

While the declines are not substantial and some Chinese zinc smelters have turned to domestic supply due to low TCs for overseas concentrates, the contraction reflects tightness in global zinc concentrate supply that has forced some Chinese zinc smelters to bring forward maintenance plans while cutting output, sources said.

"This situation varies for smelters. We understand one major smelter had decided to extend maintenance from 15 days to a month due to a lack of concentrates while another major smelter that has sufficient raw material is lifting production and delaying maintenance to June-July," a Shanghai-based zinc analyst said.

At least five major Chinese zinc smelters have carried out and/or planned maintenance in April-May, which could cut production by a total of 30,000-40,000 tonnes over those two months.

"Production cuts among Chinese zinc smelters are being driven by market forces. Many had cancelled expansion plans after the price decline last year. And unlike copper, low overseas TCs for zinc concentrates are a challenge for smelters," the Beijing analyst said.


DIFFERENT H2 OUTLOOK

The outlook for both metals is different as well. Market participants are largely bearish on copper but optimistic for zinc for the second half of the year.

"The Chinese copper market is currently still being supported by demand brought on by earlier strong stimulus measures by the government. My concern for copper is from July onwards when the impact of the measures subsides," the Beijing analyst said.

Chinese copper production is still seen growing over the full year despite the pledge of cuts from major smelters while demand is expected to slow in the second half, sources said.

The odds of zinc prices rising in the second half is much higher than those of copper due to tighter global zinc concentrate supply and expectations of improved Chinese steel demand, the Shanghai analyst said.

The Shanghai Futures Exchange July copper contract closed at 36,060 yuan per tonne, up 590 yuan, while the SHFE zinc contract for July delivery ended 395 yuan higher at 14,920 yuan on Thursday.


(Editing by Mark Shaw)



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