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22. March 2009

Processing charges of imported zinc drop in China

It is reported that the calm in international zinc price in 2009 hasn't brought any good days to China's zinc smelting industry. Sources say that as zinc mines are unwilling to sell, metallurgical plants have become increasingly dependent on overseas resources. As a result, the processing charges of imported zinc in metallurgical plants have declined to USD 90 per tonne. Mr Cheng Qingang, president of Xizang Zhufeng Industrial Co Ltd said "The processing charges we settled down in our agreement with traders were USD 120, but the charges in our most recent agreement have come down to USD 100. He said although they have some zinc concentrate now, current zinc price is too low for them to sustain the mining and dressing business, so it has been relying more and more on imported resources since Q3 of the last year.”

Excessive reliance on importing zinc resources is seen not only in this enterprise. The secretary of the import and export department of Henan Yuguang Gold and Lead Group also confessed its improper proportion between domestic and overseas zinc, which remains at 45:55. What's more, statistics from the customs also indicate that the imports of zinc ore and zinc concentrate in last Dec surged by 78.08% m-o-m and reached 262,800 tonnes. It is under such background that China's metallurgical enterprises have started to loss their speech right in the negotiation with foreign miners and traders. Owing to urgent resources, some enterprises have even pushed the processing charges of imported zinc ore to as low as USD 90 per tonne and lead processing charges to USD 50 per tonne to USD 60 per ton. Back in 2007-2008, the processing charges of zinc stayed as high as USD 160 per tonne to USD 170 per tonne.

Mr Jin Haiming a researcher from a security company said that "Now the price has already approached the product cost of metallurgical plants. Not only so, but the processing charges of domestic resources have also come down to CNY 4,500 per tonne making it approximate to the smelting cost. This put one third of private enterprises on the verge of breaking their financial chains.” Foreign media said in earlier this Mar that metallurgical plants in the US had settled down the basic terms for zinc processing agreement of 2009 with zinc mines. In the agreement, it remains at USD 194 per tonne on the basis of zinc price being USD 1,250 per tonne.

Such a large gap between foreign and domestic charges is caused, as it is believed by industry insiders by that fact that there's no long term zinc ore contracts between China's zinc enterprises and foreign zinc ore, and that China's enterprises have to purchase spot resources when they need. In this way, large profits are earned by the traders, and domestic metallurgical enterprises can only make their living by slender processing charges.

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