Zinc & Lead
Easing Chinese economy cools zinc market
December 2017
On the back of rising Chinese refined zinc production and a cooling Chinese economy, the zinc price closed November 4% lower than the month prior at US$3,177/t (US1.44/lb). This was the first time since May 2017 that the monthly closing price was lower than the previous month. The cooling of the Chinese economy comes as China’s industrial output eased from 6.6% to 6.2% in October.

Despite an easing in industrial output and a rise in Chinese refined zinc production in October, LME stocks fell 17% to close November at 213kt, the lowest closure since November 2008. However, on-warrant or available LME zinc inventories remained relatively unchanged at 164kt. SHFE deliverable stocks on the other hand, rose 12% to 80kt as maintenance was completed at Chinese smelters resulting in higher production and metal moving to the exchange. Deliverable LME and SHFE stocks at the end of November covered only 3.3 days of annual demand.

Spot treatment charges for imported zinc concentrate into China averaged US$25/t in November, unchanged from October. Spot treatment charges have remained stable over the last two months despite Chinese zinc concentrate imports falling. The decline in concentrate imports however, has not affected Chinese refined production which totalled 577kt in October, an increase of 7.4% from September.

AME forecasts global refined zinc demand to rise 4.2% in 2017 to 14.4Mt, up from the 2.8% growth in 2016. This is unchanged from our November Outlook. Demand will continue to be driven by China, where demand is forecast to grow 4.3% to 7.02Mt. China’s demand for zinc is rising on the back of strong housing and infrastructure growth.

AME expects the refined zinc market to be in a 735kt deficit in 2017.  Refined zinc production has fallen in 2017 because of tighter environmental protection policies in China, concentrate shortages and lower production from major smelters including Korea Zinc’s 650ktpa Onsan, Nexa Resources’ (formally Votorantim) 340ktpa Cajamarquilla, Nyrstar’s 290ktpa Budel and Noranda’s 298ktpa Canadian Electrolytic smelter. Collectively, AME expects these four smelters to have 186kt less production in 2017 compared to 2016.