Zinc Prices May Fall as Plants Restart, Zhongjin Lingnan Says

By William Bi

May 11 (Bloomberg) -- Prices of zinc in China, the world’s largest consumer and producer, will probably drop as a recent surge led plants to resume production, according to Shenzhen Zhongjin Lingnan Nonfemet Co.

Smelters are restarting as much as 500,000 metric tons of annual capacity, Li Xialin, chief engineer at the country’s third-biggest producer said in an interview yesterday. Companies are also starting 700,000 tons of new annual capacity, he said.

Zinc, used to galvanize steel, has gained almost 30 percent this year in Shanghai and London trading after the Chinese government bought the metal to support producers and on optimism its $585 billion stimulus package will revive metal demand.

“Chinese prices cannot be sustained at recent highs of 13,000 yuan ($1,906) a ton, which should be the top end,” Li said. “London prices should also have a rapid decline.”

Zinc dropped 2 percent to 12,830 yuan a ton in Shanghai trading at 10:15 a.m. local time.

“The government’s stimulus plans can’t sustain demand for durable consumer goods in future months,” Li said. “China’s zinc imports will slow after the country restarts idled and new capacity.”

Stockpiles of the metal gained 6 percent, or 4,640 tons, to 80,074 tons last week, the Shanghai Futures Exchange said in a report on its Web site on May 8. China’s imports of refined zinc jumped 876% to 210,730 tons in the first quarter from a year earlier, according to customs data.

Li didn’t elaborate on his comment about consumer demand.

To contact the reporter on this story: William Bi in Beijing at wbi@bloomberg.net