SHANGHAI (Interfax-China) -- Recent heavy snowfall may provide short-term support for base metal prices, however prices may face downward pressure in several months as supplies increase, analysts told Interfax today.
"Although it has been reported that several smelters affected by the snowstorms have resumed production, it will take some time before they resume normal production levels. Also, China's growing demand will keep base metal prices in an uptrend for a while. However, increased output from smelters may drag prices lower in April or May," Li Junchao, an analyst with Shenyin Wanguo Securities, said.
"The increase in base metal prices and lower stockpiles on the London Metals Exchange since earlier this month indicate demand is expected to rise, which will in turn provide support for the domestic metals market," Li said.
Zhang Lianggui, an analyst with Capital Futures, said China's base metals prices are facing downward pressures from rising stockpiles following the Chinese Lunar New Year, as production is due to step up and the snowstorm will no longer have an impact on prices.
"The unusually severe blizzard in southern and eastern China in mid January did force smelters to either completely halt or severely cut back production. But it happened to occur during the low season for smelters. Before the Chinese Lunar New Year, snowstorms drove up metal prices, and now it's time to focus on other factors, like the to-be-increased production volume. What's more, many snowstorm-affected smelters are reported to have resumed production," Zhang said.
The most-traded zinc contact on Shanghai Futures Exchange soared 13% from Jan. 28 to close at RMB 20,905 ($2,907.91) per tonne on Feb 5. But during the first two trading days after the Chinese New Year, zinc futures plunged 4.19% to close at RMB 20,030 ($2,786.20) today.
"The acknowledged zinc surplus, both worldwide and in China, as well as the coming production season will make zinc futures prices come down after recent price speculation," Zhang added.
The most-traded copper contract on the SHFE closed at RMB 64,300 ($8944.22) per tonne today, up 2.85 from Feb. 5, while the most-traded aluminum contract closed at RMB 64,300 ($8944.22) per tonne today, up 1.44% from Feb. 5.
Zhang expects strong domestic demand for copper, coupled with electrical grid reconstruction in snow-hit areas, will keep copper prices high, at around RMB 65,000 ($9041.59) per tonne.
Hunan-based Zhuzhou Smelter Group, China's largest zinc smelter by output, announced today it has resumed normal production levels, after power shortages resulting from the snowstorm were resolved in Hunan Province last week. The company had halted refined lead production and suspended some of its zinc smelting facilities on Jan. 29.
According to a report by China Securities Journal today, Jiangxi Copper Group has resume operation of 80% of its smelting capacity.
Southern and Eastern China Provinces, including Hunan, Hubei, Guizhou, Guangxi, Jiangxi and Anhui, were the worst-hit regions.
(c) Interfax-China 2008. For further information regarding Interfax China Commodities Daily Reports, contact David Harman at email@example.com or (852) 2537-2262. Interfax will publish a comprehensive China Grains & Soft Special Report in March 2008, contact David Harman for details.