Surplus in China's zinc market as demand wanes
Hong Kong
CHINA'S zinc market faces a surplus in the second quarter as steady domestic production and imports push up supply while demand weakens amid the slowing domestic economy.
A growing surplus in China could weigh on demand for imports, which hit a seven-month high in March.
China's tightening environmental requirements will also trim zinc demand given many factories that produce semi-finished and finished zinc products such as alloys and zippers are small, said Fan Jiaqi, an analyst at state-backed research firm Antaike.
Some zinc-galvanized steel producers would continue to operate in lower production in the first half after their high production in the second half of last year pushed up their metal stocks, Mr Fan said.
Zinc-galvanized steel is widely used in consumer goods such as cars and home appliances, and is the largest user of zinc in China.
In the first quarter, production of zinc-galvanized steel sheets and strips rose 4.9 per cent year-on-year - the slowest growth at least since early 2013, according to government data.
"We have received very few orders this year," said a manager at a medium-sized zinc alloys producer, adding that many alloy producers' orders had fallen from previous years.
The manager and Antaike's Mr Fan said demand could rise moderately in the second half as Beijing's recent measures to boost liquidity and infrastructure projects push up orders from factories.
While the sales managers at two zinc smelters said they found it hard to sell spot zinc, their smelters had no plans to cut production since they were still making profits.
China produced 1.46 million tonnes of refined zinc in the first quarter, up 15 per cent from a year ago.
Adding to the supply was strong imports, the sources at smelters and the alloys producer said. Importers had increased buying earlier when the price differentials between overseas and Shanghai futures contracts were favourable for imports.
Imports of refined zinc stood at 40,894 tonnes in March, the highest since last August.
Reflecting the plentiful supply, sellers have offered discounts of above 200 yuan (S$44) from the front-month Shanghai contract for spot imported zinc and over 100 yuan for locally produced metal this month, compared with premiums mostly in the second half of 2014, according to traders and Reuters' data.
Stocks at the Shanghai exchange have doubled since late January to 156,659 tonnes on Friday last week, the highest levels since September 2014. Reuters
