The Hindu Business Line : China quake effect may hit metals’ supply

Net effect
The fall in Chinese production and demand is likely to push up prices of metals.
Production surplus this year may keep any rally on leash.

Suresh P. Iyengar

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Mumbai, May 14 The massive earthquake in Sichuan province of China on Monday is set to rattle the demand and supply equation of base metals – copper, aluminium, zinc and lead.

Production and demand in China determines the global prices of base metals as it is one of the major producer and consumer.

Zinc smelters

Zinc output in Sichuan province is likely to take a hit as smelting units with capacity of 4-5 lakh tonnes have been halted.

Production shut down in Sichuan and neighbouring Shaanxi and Gansu provinces accounts for about 11 per cent of China’s total zinc smelting capacity. Zinc smelters in Sichuan province contributed 5.5 per cent of the total Chinese output last year.

China has also stopped lead concentrate output of 1 lakh tonnes in Sichuan and its neighbouring provinces.

Apart from structural damage to facilities, disruption in power supply to quake-hit Sichuan province may hit aluminium smelters.

Power supply

According to State Grid, six transformer substations were shut down, reducing power supply to the Sichuan power grid by 4 million kilovolts after a 500-KV and five 220-KV transformer substations in Sichuan were affected by the earthquake. In addition, five power plants in western Sichuan were disconnected from the power grid.

Impact on prices

The fall in Chinese production and demand is likely to push up prices of base metal especially zinc, lead and aluminium in the short term.

However, a huge rally in prices is unlikely as the production is estimated to be surplus this year.

“High prices may not sustain in the long term as the demand will hit a plateau due to a slowdown in global economy,” said Mr Sushil Sinha, Managing Director, Karvy Commodities.

Mining woes

China has a very broad variety of mineral reserves.

The proven reserves of 20 key minerals rank first in the world, including coal, titanium, lead-zinc, molybdenum, tungsten, tin, lithium, rare earth elements, antimony, magnesite, asbestos are ranked first in the world.

There are more than 5,300 coal mines, 1,971 iron-production units, over 900 copper units in 29 provinces and about 1,000 gold mines located almost in all provinces.

China contributes for 34 per cent of global zinc production, 36 per cent of lead output, 18 per cent of copper and 33 per cent of aluminium.

It consumes 33 per cent of global zinc usage, 32 per cent of lead, 26 per cent of copper and 34 per cent of aluminium.

Major copper producers

Among major copper producers in China, Anhui leads with a capacity of 2.3 million tonnes, Jiangxi 1.9 million tonnes.

Hunan has lead production capacity of 2.6 million tonnes and 4.5 million tonnes of zinc. Liaoning produces 3.4 million tons of zinc, while Henan leads in aluminium production at 4.2 million tonnes, the highest in China.

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