Platts reports that China's zinc sector is divided over the impact of a possible continuing spike in three-month LME zinc prices.
Some analysts believe that if the current price spike continues it could prompt traders in China to re-export earlier purchases as the domestic market is seen as being unable to digest the 500,000 tonnes of the metal currently stockpiled in the country.
A source at Longyield zinc trading company in Shaanxi Province said it was getting harder to sell zinc in China as the annual low season approaches next month, prompting some traders to look for opportunities in Japan, Taiwan and South Korea. But he felt that the re-exports, if they happened on a large scale, could pressure down LME zinc prices as had happened in 2002-03 to USD 1,250 to 1,300 per tonne.
LME three-month zinc prices hit a seven-month high of USD 1,614 per tonne on May 7th from USD 1,100 per tonne in February. And, on Wednesday, the LME three-month zinc price stood at USD 1,480 per tonne unchanged from Tuesday.
China's domestic zinc price remained stable at stood at CNY 12,700 per tonne over the same period, but analysts said it was unlikely China's domestic zinc price would rise above CNY 14,000 per tonne in the short term, given its higher mine operation rates, high stock levels, plus a slim chance of the State Reserve Bureau buying zinc for the third time in the near term.
A commodities analyst at Galaxy Securities in Beijing said the emerging signs of an economic recovery should help support LME three-month zinc price at around USD 1,400 per tonne in the near term. However, he added that while Chinese re-exports "may pressure down LME three month zinc prices later this year, it may not be as low as USD 1,200 per tonne as reduced global zinc output this year will help support prices."
LME zinc stocks stood at 322,775 tonne down from 339,025 tonnes in late April and the Galaxy analyst predicted the world's refined zinc output in 2009 to be 8% to 9% less than last year on mine shutdowns.
Other industry sources forecast that the Chinese government's efforts to maintain domestic GDP growth at 8% in 2009 and invest heavily in infrastructure could also support LME zinc prices this year. China consumes around 3.7 million tonnes per year zinc, equivalent to 308,333 tonnes per month.
The Chinese government imposes a 3% tax on zinc imports. However, stocks held in bonded warehouses are not classed officially as imports until traders have paid the 3% import tax.
Source: Steel Guru
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