UPDATE 3-China zinc smelters pledge 20 pct output cuts; prices spike

The industrial internet
November 17, 2015
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November 24, 2015

(Updates prices)

Nov 20 China’s major zinc smelters said on Friday they will slash output by 500,000 tonnes next year, almost a fifth of their output as the industry tries to boost prices languishing at six-year lows.

A joint statement by ten of the world’s top zinc producers on the Shanghai-based consultancy SMM’s website said the move was aimed at controlling overcapacity.

The benchmark zinc price on the London Metal Exchange jumped more than five percent to $1,620.50 a tonne in early London trade. It fell back to $1,588 by 1437 GMT, but is still on course for its largest one-day gain since Oct. 9.

However the cuts by the Chinese smelters account for only about 3.5 percent of the global market estimated at around 14 million tonnes next year. That is unlikely to help balance the market, which is still expected to see a surplus in 2016.

Chinese plans to shift the economy towards consumer-led growth away from manufacturing has also meant slower demand growth in the top consumer and contributed to the oversupply.

The metal used to galvanise steel hit a six-year low of $1,487.50 on Thursday.

“We’re going to need to have more tangible signs of a pick-up in Chinese activity before the metals markets generally look at the positives instead of just focusing on the negatives,” said Caroline Bain, commodity economist at Capital Economics.

“We had the announcement of zinc mine closures by Glencore a month or so ago and we had a pick up in the zinc price but then it fell back again.”

Mining giant Glencore said on Oct. 9 it would cut 500,000 tonnes of zinc output, about 100,000 tonnes of that reduction would come in the fourth quarter of 2015.

Zinc prices rose more than 10 percent after that news.

Wenyu Yao, a senior analyst at GFMS, the metals research and forecasts team at Thomson Reuters, also said the cuts will give prices a short-term boost, but are unlikely to offset the growing global surplus of both refined metal and concentrates.

The producers included in the joint statement were: Zhuzhou Smelter Group Co Ltd ; MCC Huludao Nonferrous Metal Group Co Ltd ; Shenzhen Zhongjin Lingnan Nonfemet Company Ltd ; Henan Yuguang Gold and Lead Group Co Ltd ; Chihong Zinc and Germanium ; Hanzhong Zinc Industry Co Ltd; Baiyin Nonferrous Metals Group Co Ltd; Dongling Group; Hechi Southern Non-ferrous Metal Smelting Co Ltd and Chifeng NFC Kumba Hongye Zinc Co, Ltd (CNKH).