Takeaways from zinc & lead industry conference: market tone neutral; Macquarie Research,

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Takeaways from zinc & lead industry
conference: market tone neutral; more
worry about lead demand than zinc
 Last week, we attended the 6th Zinc & Lead Summit held by CBI in Zhengzhou
(the capital of Henan province), with approximately 150 domestic industry
participants. We have talked to zinc/lead smelters/traders, lead-acid battery
producers and some officials from the Lead-acid Battery Industry Association.
 The key takeaways include the “neither good nor bad” tone in the market, and
some worries about macroeconomic uncertainty at home and abroad, and
policy risk affecting lead in the short term. Demand-side worries, if any,
related more to lead than zinc.
Zinc – more macro concerns than fundamental worries
 The market pulse for zinc demand is currently neutral, and the market
concern is skewed to macro side rather than fundamental demand for this
metal. We were told that the year-to-date demand for zinc is still increasing,
albeit at a slower rate.
 However, the market is overhung with some worry over the uncertainty of
what the future will bring in the current macro-economic environment both at
home and abroad.
 Apart from the demand side, we would note that local Chinese smelters do
not always appear to be fully informed about the balance and supply chain in
the seaborne market for zinc/lead concentrates. This contributed in reducing
their appetite for imported raw materials this year.
Lead – policy risk reducing short-term demand
 At present, the lead market is weighed down with worries about policy risk to
the lead battery industry that consumes 80% of this metal in China.
 We have been told that the new regulations (entry barriers in particular) for
lead-acid battery industry are under revision and expected to come out in
October at the earliest. Currently, the concerns are mostly over safety buffer
zones (the distance between production plants and borders of communities)
and capacity thresholds. The industry foresees the national regulations to
become milder than Zhejiang’s local regulation, which is deemed very harsh.
With the advent of the new regulations, local policies should follow soon in ex-
Zhejiang provinces and there will be another round of clamp-downs to ensure
compliance with those new prescriptions. This policy risk is souring market
sentiment for the time being and out to the end of 2011.
 From a long-term perspective, we still see a strong fundamental potential for
demand growth in both lead and zinc when we look at major end-use sectors.