Smaller smelters agree over output cuts

By Fu Chenghao  |   2008-7-15  |     NEWSPAPER EDITION

CHINA'S main zinc and lead smelters have agreed to cut output by 10 percent during the summer to ease power shortages ahead of the Olympics and prop up prices.

In a meeting in Shanghai on Saturday, companies including Sichuan Hongda Chemical Industry Co and Hanzhong Bayi Zinc Industry Co, agreed to the 10 percent cut in the three months to the end of September, the Shanghai Nonferrous Metals Trade Association said yesterday.

This follows the major Chinese aluminum smelters' decision last week to cut output by 5 to 10 percent.

The Shanghai association said the cut was to help ease power shortfalls during the Olympics, without directly saying the motive was also to support metals prices.

But it did say zinc and lead firms have been facing increasing pressure since the second half last year amid decreasing prices. Analysts doubted if the cut proposal would effectively revive the market.

"In the short term international zinc prices may rise on the cut news, but they are still under downside pressure in the mid term based on the fundamentals such as weak demand," a BOC International note said.

Zinc rallied for a fourth day in London trading, after falling 26 percent this year to July 8, amid oversupply concern, even though Chinese exports tumbled. In Shanghai, zinc for September delivery settled 2.01 percent higher yesterday.

In the absence of industry leaders, a 10 percent cut won't bolster prices very much, said Bohai Securities analyst Jin Haiming.

Major zinc companies, including Hunan-based Zhuzhou Smelter Group and Liaoning's Huludao Zinc Industry Co, are meeting today in Beijing to discuss market conditions and possible production cuts, an industry official said.

"The snowstorms early this year had largely disrupted production especially in Hunan, and the May earthquake also badly affected output in Sichuan," Jin said.

"But nationwide output didn't fall, indicating huge potential supplies."