China zinc smelter cuts fail to tip the supply-demand balance

Output cuts announced by Chinese zinc smelters last week will do little to tighten next year’s global supply-demand balance in refined metal because already known mining cutbacks would have forced smelters to reduce production anyway.

On top of that, hard-hit prices will fail to get much of a lasting boost in coming months due to a glut of world inventories, although there may be spikes of short-covering, analysts and investors said.

Zinc is one of a clutch of industrial metals including bellwether copper which have hit multi-year lows this month, weighed down by a surplus of supplies and a fall-off in demand from top customer China.

Benchmark zinc prices found respite on Friday following the announcement of plans by top Chinese zinc smelters to slash 500,000 tonnes of production next year.

But that is a only a small proportion of global consumption estimated at between 13 to 14 million tonnes this year and the uplift was mainly due to panicky bears closing short positions - bets on lower prices - but this soon ran out of steam and prices on Monday came close to last week’s six-year low.

Three-month zinc on the London Metal Exchange has shed nearly 28 per cent this year and was last at US$1,570 a tonne.

Investors seem to be realising that Chinese smelters were just bowing to the inevitable, said Graham Deller, head of zinc research at consultancy CRU.