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China Commodities Weekly
Key takeaway from Hunan trip: good
demand for metals
With equity markets under pressure this week, we took a trip into China to get
a sense of the real demand situations. We visited a large steel mill, a zinc
smelter and some property developers.
Zinc market: good demand, mine supply improving
The zinc smelter reported strong sales with production selling out everyday.
With China‟s galvanised steel production rising by 17.4%YoY in 1H11,
demand for zinc has been good. However, a slowdown is a possibility in the
summer months due to the potential for further power rationing.
Tight concentrate supply is improving. Miners‟ supply is largely incentivised by
the recovering zinc price (up until the past few days at least). However, the
imported TC now remains ~$90-100/dmt CIF for clean concentrates since
early July, implying the supply is still tight although improving.
Zinc smelters facing cost pressure
Smelters are pressured by surging power, labour and financial costs. A power
tariff increase of RMB0.016-0.02/kWh could raise costs by RMB34-43m a
large-sized smelter (500ktpa capacity) and RMB14-17m for a medium-sized
one (200ktpa capacity) per annum.
The market is worried about the high inventory of zinc in the SHFE warehouse,
which remains above 400kt, although there is evidence of destocking outside
of the exchange.
Steel consumption bolstered by construction activity
We also visited a large steel mill in Hunan, capable of producing 22mtpa of
steel: 17mtpa for flat steel and 5mtpa for long steel. The steel mill reported
good demand for its long steel, which is mostly sold into the local market.
Construction of commodity buildings in lower-tier cities in the region has
bolstered steel sales – the mill does not believe that social housing will
provide a major boost to steel demand, but neither is it needed.
For the flat steel, the medium-term outlook held by this steelmaker is
optimistic. They highlighted that while growth in the auto sector has slowed,
the increase in base over the last few years means the absolute demand is
still substantial.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China Commodities Weekly
Key takeaway from Hunan trip: good
demand for metals
With equity markets under pressure this week, we took a trip into China to get
a sense of the real demand situations. We visited a large steel mill, a zinc
smelter and some property developers.
Zinc market: good demand, mine supply improving
The zinc smelter reported strong sales with production selling out everyday.
With China‟s galvanised steel production rising by 17.4%YoY in 1H11,
demand for zinc has been good. However, a slowdown is a possibility in the
summer months due to the potential for further power rationing.
Tight concentrate supply is improving. Miners‟ supply is largely incentivised by
the recovering zinc price (up until the past few days at least). However, the
imported TC now remains ~$90-100/dmt CIF for clean concentrates since
early July, implying the supply is still tight although improving.
Zinc smelters facing cost pressure
Smelters are pressured by surging power, labour and financial costs. A power
tariff increase of RMB0.016-0.02/kWh could raise costs by RMB34-43m a
large-sized smelter (500ktpa capacity) and RMB14-17m for a medium-sized
one (200ktpa capacity) per annum.
The market is worried about the high inventory of zinc in the SHFE warehouse,
which remains above 400kt, although there is evidence of destocking outside
of the exchange.
Steel consumption bolstered by construction activity
We also visited a large steel mill in Hunan, capable of producing 22mtpa of
steel: 17mtpa for flat steel and 5mtpa for long steel. The steel mill reported
good demand for its long steel, which is mostly sold into the local market.
Construction of commodity buildings in lower-tier cities in the region has
bolstered steel sales – the mill does not believe that social housing will
provide a major boost to steel demand, but neither is it needed.
For the flat steel, the medium-term outlook held by this steelmaker is
optimistic. They highlighted that while growth in the auto sector has slowed,
the increase in base over the last few years means the absolute demand is
still substantial.
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