China's SRB To Buy 400,000 Tonnes Of Lead And Zinc

Platts has quoted Beijing Antaike Development, the state-run nonferrous metals information provider, as saying that China's State Reserve Bureau plans to purchase 400,000 tonnes of lead and zinc in the next three years to keep in line with the Chinese government's metals revitalisation plans to control supplies.

Although industry insiders in China believe SRB's lead and zinc purchase plans in the next three years should help stabilise domestic prices and support smelters production, a commodity analyst with Antaike said mere SRB purchase action could not fully solve the Chinese lead and zinc producers' financial problems stemming from weak domestic and overseas demand.

The Antaike analyst said SRB's zinc and lead purchases in the next three years are not for actual consumption, so an actual future increase in overseas and Chinese domestic lead and zinc demand can have a lasting positive impact on domestic lead and zinc prices.

An official with Sichuan-based zinc producer Hongda Group said: "Future stability in the Chinese lead and zinc prices will depend very much on a real increase in market demand, as well as whether the government could succeed in eliminating 600,000 tonnes per year of inefficient domestic lead and 400,000 tonnes per year of zinc smelting capacity by end 2009."

According to Antaike and other Chinese analysts, SRB's zinc purchases of 159,000 tonnes from smelters so far this year have already lifted domestic prices over the past few months.

Chinese domestic zinc prices stood at CNY 12,750 per tonne down by CNY 200 from last Friday. In early 2009, local zinc prices were much lower at just around CNY 10,000 per tonne.

The Antaike source said "But due to a lack of improvement in Chinese domestic demand, as well as the forthcoming slack buying season, Chinese domestic zinc prices are expected to fall greatly by the third quarter of this year. The positive impact stemming from SRB's recent purchases have already ended. This, plus poor domestic demand for zinc and a recent surge in zinc imports by China on the price gap between LME and Chinese zinc price"

The analyst added that "Chinese zinc prices have lately followed LME's downward movement."

Source: Steel Guru/Platt's