Oversupply of zinc and lead concentrate in 2019

Asian Metal: Hello Mr. Jian, please briefly introduce your company.

Mr. Jian: Shaanxi Huaye Industry and Trade Co., Ltd., established in October 2009, is located in Hi-tech Zone, Xi'an of Shaanxi. As a wholly-owned subsidiary of Baoji Xibei Nonferrous Seven-one-seven Limited Company, it mainly purchases and sells nonferrous metals like lead, zinc and copper and precious metals of gold and silver, and also does such businesses as mining equipment, warehouse logistics, etc.

Asian Metal: Please share with us your mine resources and current operation.

Mr. Jian: Our parent company Baoji Xibei Nonferrous Seven-one-seven Limited Company has two lead-zinc mines: Erlihe lead-zinc mine and Zhen'ao Dingsheng lead-zinc mine with proved reserves of 6 million tons. The crude ore in Erlihe lead-zinc mine has lead-zinc grade of about 5%, and that in Zhen'ao Dingsheng lead-zinc mine has lead-zinc grade of about 7%. Each of the two mines possesses a concentrator of 1,000tpd, which could process 300,000tpy of ore with about 40,000 metal tons of lead-zinc concentrate produced per year. Erlihe lead-zinc mine owns zinc concentrate of 55-57% and lead concentrate of 55-60%, while Zhen'ao Dingsheng lead-zinc mine owns zinc concentrate of 56-58% and lead concentrate of 50-55%. Both of them are in steady operation now.

Asian Metal: How are your overall sales in 2019? Is there any change compared with 2018?

Mr. Jian: We sell minerals within the group and also trade lead and zinc ore in the market. Our sales target is RMB2 billion (USD0.28 billion) this year, while that was about RMB1.8 billion (USD0.25 billion) in 2018. Smelters in Shaanxi, Gansu, Hunan and other regions are our major clients who have stable demand, but this year the products sell worse than last year when zinc concentrate market saw tight supply and smooth sales. TCs for zinc concentrate persistently rise this year amid oversupply, and smelters are short of capital, so it is harder for us to close deals.

Asian Metal: TC for zinc concentrate is at high levels now, and that for lead concentrate shows uptrend as well. What do you think are the reasons for this?

Mr. Jian: In my opinion, more supply of zinc concentrate and lead concentrate results in higher TCs for them. In specific, more imported ore leads to supply glut of zinc and lead concentrates in China.

With the lowest TC for zinc concentrate only at about RMB3,200/metal ton (USD451/metal ton) in H1 of 2018, most smelters were in the red then. Along with production resumption of several major mines abroad in H2 of 2018, more foreign ore was imported to China, leading to excess supply of zinc concentrate in China. As of late 2018, TC for zinc concentrate 50%min already rose to about RMB6,000/metal ton (USD845/metal ton), resulting in largely increased profits for smelters. Given that foreign zinc concentrate output rose by about 240,000t in H1 of 2019, the overall supply of the material was still excess despite decreased output in China restricted by environmental inspections, so TC for zinc concentrate climbed further to the current level of RMB6,600-6,800/metal ton (USD930-958/metal ton).

TC for lead concentrate also edged up in the past two months. There are two reasons: increased imported ore; less demand from smelters in Henan and other regions affected by environmental inspections.

Asian Metal: Can you share your perspective on TCs for zinc concentrate and lead concentrate in Q4 2019?

Mr. Jian: Zinc concentrate output in several major mines abroad might substantially rise in H2 2019, and global zinc concentrate market is expected to see surplus of around 230,000t in 2019, so I believe that TC for zinc concentrate would maintain at high levels in a short period of time. However, the supply of Chinese zinc concentrate would drop after November when some mines in North China suspend due to the cold weather, so TC might edge down that time.

According to relative statistics, lead concentrate supply is also in surplus in 2019, and the surplus volume is anticipated to be about 64,000t in 2019, up from only 11,000t in 2018. Therefore, I believe that TC for lead concentrate would keep at high levels in Q4.

Asian Metal: Could you share your opinion on the price trend of zinc ingot in Q4 2019?

Mr. Jian: We think zinc ingot prices would fluctuate down in Q4. The reasons are as follows: at the macro level, global economy growth slows down in 2019, and China-US trade war and other factors like the strong dollar are unfavorable to prices for zinc ingot and other nonferrous metals; in terms of the fundamental condition, the supply of zinc concentrate and refined zinc is predicted to be sufficient this year, and refined zinc output is expected to slightly rise in Q4 along with some smelters to finish maintenance; as to downstream consumption, consumption from real estate as well as automobile industries is sluggish, so the demand for zinc ingot would be weak in Q4.

Asian Metal: Could you talk about your expectation of lead ingot price trend in Q4 2019?

Mr. Jian: Firstly, at the macro level, like I just said, lead ingot prices would bear pressure too due to the same reasons as those for zinc ingot; secondly, from the consumption perspective, auto production and sales drop this year and new national standard for electronic vehicle was published, leading to weak consumption of batteries, so we believe lead ingot prices would show downtrend in Q4. However, when the heating season comes in Q4, lead ingot production might be cut in North China affected by environmental protection factors, which would support lead ingot prices to some extent, so prices for the material would not drop remarkably in Q4 on the whole.

Asian Metal: Thanks for your time, and wish your company a bright future.

Mr. Jian: Thank you.