China's Lead and Zinc Industries to Undergo Consolidation
China's lead and zinc industries to undergo consolidation
China's fragmented lead and zinc industries are expected to undergo consolidation within the next five years as small-sized miners and smelters are increasingly being forced out of business due to plummeting product prices, an industry analyst told Interfax on Nov. 12.
"Booming lead and zinc prices in the last few years led to an investment frenzy in the metal mining and smelting sectors. However, China's ongoing industrial structure optimization, coupled with the current global economic downturn, will likely induce a cool down in investments and accelerate consolidation," Feng Juncong, a senior analyst with Beijing Antaike Information, said.
"In particular, since the beginning of October, lead and zinc prices have tumbled by more than 30 percent, causing almost all zinc miners and smelters to rack up losses, while lead smelters are earning just fractional profits. China's lead and zinc industries will likely consolidate within the next five years under the current climate," Feng said.
In 2007, there were only six lead smelters that each had an annual production capacity of over 80,000 tons, accounting for 33 percent of China's total output, while there were nine zinc smelters that each had an annual production capacity of over 100,000 tons, accounting for about48.7 percent of combined domestic output?
Feng said that ideally, large-scale lead and zinc miners and smelters should account for 50 percent to 60 percent of the country's lead and zinc output.
Feng also said that even though China(cnmining) is among the richest in the world in lead and zinc resources, ore supplies are relatively tight because mining facility expansion is lagging behind smelting capacity expansion.
Moreover, China's zinc concentrate output is likely to decline by 4.6percent year-on-year to 3.09 million tons in 2008, due to interruptions by snowstorms in February and the May 12 Sichuan earthquake, according to Feng.
Feng forecast that China's refined zinc consumption will increase by 4 percent year-on-year in 2008, much lower than the average growth of 14.5 percent in the past eight years. Also, production output from China's automobile manufacturers, which are major refined zinc consumers, is expected to grow at a slower pace of 15 percent year-on-year.
The three-month lead contract price on the London Metal Exchange (LME) fell from its peak of $38,800 per ton in October 2007 to $12,700 per ton on Nov. 12, while the three-month zinc contract nosedived from $45,300 per ton in November 2006 to the current price of $11,000 per ton.