The massive earthquake in Sichuan province of China on Monday is set to rattle the demand and supply equation of base metals – copper, aluminium, zinc and lead. Production and demand in China determines the global prices of base metals as it is one of the major producers and consumers.
Zinc output in Sichuan province is likely to take a hit as smelting units with capacity of 4-5 lakh tonnes [400,000-500,000 tonnes] have been halted. Production shut down in Sichuan and neighbouring Shaanxi and Gansu provinces accounts for about 11% of China’s total zinc smelting capacity. Zinc smelters in Sichuan province contributed 5.5% of the total Chinese output last year.
China has already stopped lead concentrate output of 1 lakh tonnes in Sichuan and its neighbouring provinces.
Apart from structural damage to facilities, disruption in power supply to quake-hit Sichuan province may also hit aluminium smelters. According to the State Grid, six transformer substations were shut down, reducing power supply to the Sichuan power grid by 4 million kilovolts after a 500-KV and five 220-KV transformer substations in Sichuan were affected by the earthquake. In addition, five power plants in western Sichuan were disconnected from the power grid.
The fall in Chinese production and demand is likely to push up prices of base metal especially zinc, lead and aluminium in the short term.
However, a huge rally in prices is unlikely as the production is estimated to be surplus this year and demand is expected to hit a plateau due to a slowdown in the global economy.
China contributes for 34% of global zinc production, 36% of lead output, 18% of copper and 33% of aluminium.
It consumes 33% of global zinc usage, 32% of lead, 26% of copper and 34% of aluminium.
Source: The Hindu Business Line
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