Western Mining pares lead and zinc forecasts

Western Mining, a key lead and zinc miner on the mainland, yesterday cut its production forecasts for the two minerals this year amid rising costs, limited power supplies and falling zinc prices.

The forecast cuts came after the Shanghai-listed firm said its first-half profit fell 15.74 per cent to 720 million yuan (HK$824 million) as zinc concentrate prices declined. Sales jumped 80.49 per cent to 6.24 billion yuan.

The Xining, Qinghai-based metals producer said it had cut or halted production in some lead-producing units for maintenance and repairs works. A zinc smelter in Hunan province also stopped output for the same reason after local authorities cracked down on mining in the region.

Another plant in Qinghai province also cut or halted production in July and August last year, it added.

Western Mining said zinc output would be reduced to 54,300 tonnes this year from the initially planned 70,000 tonnes. It produced 24,000 tonnes of zinc ingots in the first half.

Lead output is expected to fall to 35,300 tonnes from the planned 65,000 tonnes. The firm produced 15,000 tonnes of lead ingots in the first half. Manganese production was cut to 10,700 tonnes from 15,000 tonnes after an output of 4,000 tonnes in the first half.

This month, 27 small zinc smelters agreed to cut output by 10 per cent in the third quarter to reduce costs and ease power shortages after the price of zinc, used to galvanise steel, slumped 36 per cent in London in the first half as global supplies exceeded demand.

Western Mining said its average selling price for zinc concentrate, which forms more than half of its output, fell 50 per cent year on year in the first half and dragged down its profit.

Western Mining said the increase in lead concentrate prices was not large enough to offset the drop in zinc prices and rising production costs.

It has hedged against falling zinc prices and booked 98 million yuan of gains from hedging.

Morgan Stanley expects a market surplus of 163,000 tonnes of zinc this year and 96,000 tonnes next year, which will continue to weigh on zinc prices.

Western Mining shares fell 0.08 per cent to 13.12 yuan yesterday.