London 29/01/2016 - News that Chinese zinc smelters have reiterated their intention to carry out production cuts promised last year will have a limited impact on the market, according to multiple sources.
The 17 smelters that met on last Friday - including MCC Huludao Nonferrous Metals Group, Baiyin Non-ferrous Group, Shaanxi Dongling Group - pledged to make good on their November announcement of output cuts of 500,000 tonnes of refined zinc in 2016.
But many doubt that whether these production cuts would materialise since such announcements are not legally binding and the industry lacks a clear leader.
"In the meeting, every company pledged to slash five to 10 percent of their annual production. But to be honest, we have not set a deadline for the cuts," a zinc smelter who attended the meeting said.
"And for us, it all depends on the zinc concentrates treatment charges [TCs] - if they go up again, the cuts will be hard to be put into practice," he added.
Zinc TCs, the discounts on refined prices miners grant to smelters to cover the cost of turning concentrate into metal, have fallen nearly 15 percent to $135-150 per tonne on a cost, insurance and freight (CIF) basis for delivery to Chinese ports from $160-175 earlier this month.
On the LME, three-month zinc was last at $1,606 per tonne, up $16 from yesterday's close.
A trader in Europe was sceptical of claims of smelter discipline, claiming that Chinese producers are merely jockeying for a better position from which to negotiate.
"The market dynamics have changed - the Chinese market this year will be short of stocks," he added. "We've already seen a lot of enquiries from China - 2015 import data for zinc concentrates [shows] huge imports in 2015."
China imported 231,248 tonnes of zinc ores and concentrates in December, lifting the full-year total to 3,237,265 tonnes, up 47.39 percent on 2014, according to China custom data.
China has lowered output through necessity rather than choice, another trader in Europe said.
"There is not enough concentrate… If they cut 500,000 tonnes, that's because there isn't 500,000 tonnes of concentrates to smelt," he said. "They are just trying to contain an inevitable decline in TCs for zinc concentrates - if they cut it will only halt that momentarily."
Despite talk that the smelters would consider forming a coalition akin to the China Smelters Purchase Team (CSPT) for copper concentrates, one trading source believes this is unlikely despite the increased bargaining power this alliance would have.
The zinc smelters are too spread out across the country and represent only about half of China's total zinc capacity. They are not as united in their aims as the country's copper smelters, he also said, questioning if any one smelter would be interested - and have the backing of its partners - in leading such a coalition.
(Editing by Mark Shaw)