China\'s smelters agree to cut production by 10%

China's 27 lead and zinc smelters agreed to cut production by 10 percent between July and September, in a move to prop up market prices and relieve electricity shortages.

The zinc and lead producers that signed up to the deal included Sichuan Hongda Co Ltd and Henan Yuguang Gold & Lead Group Co Ltd, the Shanghai Nonferrous Metals Trade Association said yesterday. However, the country's top zinc producers, Hunan Zhuzhou Smelter Group Co Ltd and Huludao Zinc Industry Co Ltd are not on the list.

"When cutting production, companies can make some maintenance work. They can also save some electricity to support the coming Olympic Games and the development of other industries," the association said in a statement.

"Domestic companies should take further measures such as energy conservation and management improvement to lower their costs," said the statement. Energy accounts for 25 to 30 percent of the cost of producing zinc, making it the second-most energy-intensive metal after aluminum.

Last week, China's aluminum smelters agreed to reduce production through September because of power shortages and to ensure supplies for the Beijing Olympics, the China Nonferrous Metals Industry Association said.

Since last year, prices of lead and zinc have seen a sharp decrease on the market. Statistics show that since May 2007 the price of zinc billet has decreased by 53 percent to 15,650 yuan per ton, and the price of lead billet was down by 34.74 percent to 16,500 yuan per ton.

Falling prices have put domestic companies in great difficulties, said Tong Leshen, an analyst with the Shanghai Nonferrous Metals Trade Association. Apart from the smelters, some mining resource companies in the sector are also under big pressure.

There may be a global oversupply of 215,000 tons of zinc this year, the International Lead and Zinc Study Group said in April. Lead may have an excess of 26,000 tons, the group said.

From January to May this year, China's lead consumption has seen a decrease of 50,000 tons, but the manufacturing capacity continues to see increases, said China Nonferrous Metals Industry Association. This year, provinces such as Shaanxi, Hunan, Yunnan and Gansu have all seen new lead projects come on stream.

Analysts said lead and zinc smelters will continue to see 2008 and 2009 as challenging times with rapid growth in global mine production and slowed growth in demand.

Some analysts suggested that China should build national reserves for lead and zinc, in a move to prevent prices from rising too high or falling too low.