Platts reported that Hong Kong-listed Hunan Nonferrous Metals Corp. plans to spend CNY 1.2 billion over the rest of 2009 on buying metals such as zinc and lead, from its own smelters to support prices in the short term.
An official with Zhuzhou Smelter, a subsidiary of Hunan Nonferrous Metals said "We expect our parent company's zinc and lead purchases to stabilize domestic prices and balance supply and demand in the near term. However, in the long run, whether prices stay firm or rise further would depend on improvement in Chinese domestic demand."
Hunan Nonferrous Metals did not say how much of the CNY 1.2 billion would be spent on buying zinc and how much on lead purchases. Hunan Nonferrous Metals announced its purchase decision Tuesday and by Wednesday both the London Metal Exchange and domestic zinc prices had rebounded on anticipation of tighter supplies.
The LME three month zinc price closed at USD 1,483 per tonne Wednesday up from USD 1,434 per tonne Tuesday. The Chinese domestic zinc prices were CNY 13,075 per tonne Wednesday up CNY 250 from Tuesday. The LME three month lead price went up to USD 1,506.5 per tonne Wednesday from USD 1,429 per tonne Tuesday. Domestic lead prices stayed stable at CNY 13,000 per tonne Wednesday. In early April local lead prices were lower at CNY 12,750 per tonne.
Several analysts in China said that other factors also contributed to the rise in zinc prices Wednesday. A commodity analyst with Shanghai-based Maike Metal International Group said that speculative buying together with expectation that China's economy grew 6% in the first quarter of this year lifted LME and domestic zinc prices.
A zinc analyst with Beijing based Galaxy Securities said "News of major Chinese zinc smelters shutting down for maintenance in April as well as stronger domestic copper prices also supported LME and local zinc prices."
Market participants said that while China's State Reserve Bureau's purchase of 159,000 tonne zinc over January to February and now Hunan Nonferrous Metals' plan to buy up the metal is currently supporting zinc prices, there is not much hope zinc prices will continue to go up.
A source at Sichuan based zinc producer Hongda Group said "The recent rebound in zinc prices does not represent a real increase in Chinese local zinc consumption as demand for galvanizing steel is still weak."
Although industry experts have said Chinese domestic zinc prices can rebound to CNY 14,000 per tonne to CNY 15,000 per tonne by mid-2009, the Hongda source said if Hunan Nonferrous Metals and local zinc suppliers start selling their stocks later in the year as prices rise, it would once again put downward pressure on domestic prices.
The Hongda source added the recent surge in Chinese zinc imports was simply a case of traders trying to cash in on the wide difference between domestic and LME prices. "There is no real increase in Chinese demand as the local construction sector is still weak."
According to Hongda, currently a lot of zinc stocks in China are being held by traders as well as some privately owned smelters.
