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“We have been hearing some southern China smelters calling for earlier maintenance due to a strained cash flow,” a major zinc producer source in China told Metal Bulletin.
For instance, maintenance for one of the production lines in Hechi Nanfang’s smelter in Guangxi province has started 10 days earlier than scheduled, a company source told Metal Bulletin. The maintenance will remove 100 tonnes per day of smelting capacity from the market until the end of April.
Low zinc TCs and challenges in procuring zinc concentrates have been cited as obstacles for smelters’ operations, the source said.
A depressed TC implies a thinner margin for Chinese zinc smelters whose profit are calculated using an industry standard formula of the zinc price, the TC and a 20% dividend of the zinc price minus 15,000 yuan per tonne.
Metal Bulletin assessed spot zinc concentrates TC on a delivered basis to southern China at 3,200-3,400 yuan ($509-541) per tonne at the end of March, the lowest since the assessment was launched in October last year. TCs for northern China concentrate also dropped by 200 yuan per tonne month on month to 3,800-4,000 yuan per tonne on March 29.
Softer TCs were mainly attributed to tightness in zinc concentrates supply.
Last year, China’s mined zinc output fell 5% year on year to 5 million tonnes, mainly due to a pollution crackdown that deterred over 1,000 mines from ramping up output.
Mining activities in March were minimal due to restrictions on the use of explosives during the Chinese People’s Political Consultative Conference (CPPCC) and the meeting of the National People’s Congress (NPC), also known as the “two sessions” meetings.
“I still do not see much fresh supply of zinc concentrates. This year the mines resumed their operations later than usual. There’s limited room to raise the TC. We are feeling the heat,” a second major smelter source said.
April-May are traditional periods for maintenance work at zinc smelters in China, when winter inventory has been depleted.
Several Chinese smelters, including Jiangxi Copper, Dongling, Sihuan and Baiyin Nonferrous, are scheduled to undergo maintenance in April.
The duration and scale of the maintenance could be adjusted depending on the zinc price trend, a market source added. For example, a smelter sitting on high stocks of refined zinc was heard to be extending maintenance plans following the recent price decline, the source said.
Since the beginning of this year, Shanghai Futures Exchange zinc prices have lost 7% in value, closing at 24,020 yuan per tonne on Wednesday. The closing price is 11.1% lower than the year-high of 27,030 yuan achieved on January 29.
“The small and medium sized zinc smelters, especially those who do not hedge against zinc price falls, will be even more prone to volatility.” a concentrates trader said.
Total capacity removed from the market by these extended checkups and earlier-than-expected maintenance plans are yet to be known, although there has been a notable drawdown of zinc stocks in Shanghai.
In the past two weeks, the deliverable zinc stocks in Shanghai dropped by 21,494 tonnes to 137,853 tonnes as of April 13, according to Metal Bulletin’s assessment.