CRU: How Increased Chinese Smelter Output Could hit the Global Markets

CRU: How Increased Chinese Smelter Output Could hit the Global Markets

PR Newswire

LONDON, May 10, 2018

LONDON, May 10, 2018 /PRNewswire/ -- The next generation of zinc mines are ready to supply but are smelters able to treat all the concentrate? Indeed, a bottleneck on the smelting side underpins our view of rising concentrate inventories over the next few years, resulting in higher treatment charges. 

How increased Chinese smelter output could hit the global markets


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While our base case no longer has smelter output constrained enough to meet only modest demand growth. In this Insight, we look at a 2% change to our base case Chinese smelter utilisation rates and what that may mean for the global zinc metal and concentrates markets.

Chinese smelter output surged in 2017 Q4

A major surprise in 2017 Q4 was the record Chinese quarterly smelter output figures. Smelter output totalled 1.68 million tonnes (an outright record and up by 5% year-on-year) implying very high utilisation (near 100%) for a brief period. What made this result more impressive was the backdrop of critical levels of concentrate inventories and record low spot TCs.

While this result undoubtedly reflected smelters resuming operations after maintenance and feed-related closures earlier in 2017, it also reflected an increase of secondary oxides and dusts into the feed mix, supporting higher utilisation rates during the quarter. Below we have a brief look at the sensitivities of the global market to Chinese smelter utilisation and what a 2% gain or loss in utilisation may mean for the market in terms of the market balance and prices.

Before applying such scenarios, it is worth noting that through our historical series, 94% has been the effective cap on China's average smelter capacity utilisation, and even this figure has been impossible to maintain for more than 9-12 months. Over longer periods, 91.5-92% has been an effective peak. But it is also interesting that over the past decade, the average share of large smelters (> 60,000 t/y) has gradually risen and there has been a decline in share for both medium (20-60 kt/y) and small (<20,000 t/y) smelters.

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CRU offers unrivalled business intelligence on the global metals, mining and fertilizer industries through market analysis, price assessments, consultancy and events.

Since our foundation by Robert Perlman in 1969, we have consistently invested in primary research and robust methodologies, and developed expert teams in key locations worldwide, including in hard-to-reach markets such as China.

CRU employs over 260 experts and has more than 10 offices around the world, in Europe, the Americas, China, Asia and Australia – our office in Beijing opened in 2004.

When facing critical business decisions, you can rely on our first-hand knowledge to give you a complete view of a commodity market. And you can engage with our experts directly, for the full picture and a personalised response.

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