Frost & Sullivan: China Has Abundant Lead and Zinc Reserve

SHANGHAI, April 16, 2012 /PRNewswire/ -- China lead and zinc ore market developed relatively stable in recent years. With recovering economy, increasing demand from downstream, improvement of industry concentration and the support from government policies, China lead and zinc ore industry is expected to be further developed in the future.

Introduction of China Lead and Zinc Market

Lead zinc ore is the ore rich in metal lead and zinc. In nature, leads are usually found together with zinc in the primary deposits. They come from the same ore sources, both are heavily chalcophile, and can form the same soluble complex. Nowadays, people have found about 250 kinds of lead and zinc ore deposits among which, one third are sulphurs and sulphate classes. Galena, sphalerite and others are the main industrial mineral raw materials. Generally, the lead and zinc can be used for electrical industry, machinery industry, military industry, metallurgy industry, chemical industry, light industry and pharmaceutical etc.

Market Overview

In 2010, China had about 45 million tons basic reserves of lead and zinc ore. Inner Mongolia, Yunnan, Gansu, Sichuan and Guangdong are the top 5 lead and zinc ore basic reserves provinces, which occupied about 63% of the whole lead and zinc ore basic reserves in China. Inner Mongolia and Yunnan are two largest lead and zinc ore basic reserves provinces. In 2010, two provinces had about 8.9 million tons and 8.7 million tons of lead and zinc ore basic reserves and occupied about 19.7% and 19.3% of the whole lead and zinc ore basic reserves in China, respectively.

The production volume of lead in the PRC reached 4.3 million MT in 2010 from 2.7 million MT in 2006, realizing a CAGR of 12.0 percent from 2006 to 2010. The consumption volume of lead in China arrived at 3.6 million MT in 2010 from 2.2 million MT in 2006, realizing a CAGR of 14.0 percent from 2006 to 2010. In 2009 and 2010, the production of lead was around 0.6 million tons larger than the consumption, which had taken on an oversupply situation.

The production volume of zinc in the PRC reached 5.3 million MT in 2010 from 3.2 million MT in 2006, realizing a CAGR of 13.7 percent from 2006 to 2010. The consumption volume of zinc in China was 5.3 million MT in 2010 from 3.2 million MT in 2006, with a CAGR of 14.0 percent from 2006 to 2010. In the recent 3 years, the consumption of zinc exceeded the zinc production in china because of two main reasons. Overseas price of zinc was much lower than the domestic, causing large amounts of zinc imported to China. Plus, the demand from industrialization and urbanization greatly stimulated the consumption of zinc. The industrialization, the construction and auto industry in China still have the large demand of zinc. Thus, the growth rate of zinc consumption is expected to be as high as 8%-12%, and the total consumption is estimated to be up to 11 million MT in the following 5-10 years.

Market Drivers

Downstream Industries Pull the Demand of Lead and Zinc

The development of downstream industries is likely to increase the demand of lead and zinc. For example, Infrastructure and electrical appliances industries have been experiencing great growth in recent years, which have increased the demand of galvanized steel plate. Zinc is the major raw material of galvanized steel, thus Zinc consumption is likely to be pulled by galvanized steel demand.

Supporting Measures from the Government

In the period of"12th Five Year Plan", Chinese government aimed at developing the nonferrous metals industry. The government encouraged to strengthen exploration and development of lead and zinc ores, efficiently using key technology to break through the low grade of ores and supporting the use of renewable resources.

Industry Integration Enhances Industrial Concentration.

In 2009, the State Council issued "the stimulus plan of the non-ferrous metal industry", lead and zinc ore industry eliminated backward and small-scale capacities in order to restructure the industry and enhance the industrial concentration. For example, some lead and zinc ore enterprises located in south-central and the south-west regions are encouraged to cross-regional restructure.

Market Restraints

Meet with Cost Pressures

The lead and zinc ore industry have met with heavy cost pressures, because domestic manufacturers heavily relied on importing. In the meanwhile, higher labor cost and trade policy adjustment, such as raised tariffs of export, poses a lot cost pressures on the lead and zinc ore industry as well.

Heavily Depend on Importing

Although the domestic mining exploration industry has achieved certain progress, it is still not enough to satisfy the demand from great population. Thus, from the long term perspective, major domestic manufacturers are likely to heavily depend on the lead and zinc ore concentrates imported from overseas. In 2011, a number of large smelting enterprises are nagged by the high price of lead and zinc ores. In fact, such phenomenon is likely to restrict and hinder the development of lead and zinc ore industry in China.

Low mining efficiency and Outdated Technology Hinders Sustainable Development

During the period of"12th Five Year Plan", low mining efficiency and outdated technology is likely to restrict the sustainable development of lead and zinc ore industry if not well handled. Chinese lead and zinc ore resources are mostly small and poor ores and their exploitation is dominated by the independent small and medium-sized mining companies with backward technologies.

Market Competitive Landscape

In the lead and zinc ore industry, the enterprises are mainly categorized into two types. One type can be regarded as upstream mining enterprise, such as ChiHong Zn & Ge Co Ltd, Western Mining Co Ltd, these enterprises have relatively stable cost of mining and are capable of controlling the price of lead and zinc ores. The other type called downstream smelting enterprise, such as ZhuZhou Smelter Group Co Ltd, YuGuang Gold & Lead Co Ltd. Different from mining enterprises, these smelting enterprises always passively accept the price in the lead and zinc ore market and are largely influenced by cost of purchasing.

Upstream Mining Enterprise

ChiHong Zn & Ge Co Ltd

Besides producing lead and zinc, ChiHong Zn & Ge Co Ltd focuses on geological exploration, mining, ore-dressing, metallurgy, chemical, processing and scientific research.

The Company has 25 subsidiaries, a number of self-provided mine, over 50% self-sufficiency rate of raw materials and over 10,000 employees. In 2010, the total asset has reached about RMB92 billion.

Western Mining Co Ltd

Western Mining Co Ltd., located in the western region of China is a large mining listed company that regards the mineral resources comprehensive development as its main business. The company is mainly engaged in ore-dressing, smelting and trading of basic metal, such as lead, zinc and black metal. Company has the lead and zinc ore deposit located in Qinghai tin iron mountain, which is the largest scale of ore-dressing one in China. In 2010, the total asset was about RMB225 billion, the operation revenue has arrived at RMB185 billion.

Downstream Smelting Enterprises

YuGuang Gold & Lead Co Ltd

YuGuang Gold & Lead Co Ltd was founded in 1957. At present, the company has over 7,000 employees. Its main businesses include Non-ferrous metals and precious metal smelting. This group is one of the largest lead smelting company, which has 0.4 million tons of lead capacity and 0.25 million tons of electrolytic zinc capacity. In 2010, the company's operation revenue is about RMB83 billion.

ZhuZhou Smelter Group Co Ltd

ZhuZhou Smelter Group Co Ltd locates zhuzhou city of Hunan province, which is called the China nonferrous metal's home. Company mainly produces zinc, lead, precise metals and sulfuric acid. The zinc capacity is about 0.28 million tons and the lead capacity is about 0.1million tons. In 2010, the company's operation revenue reached approximately RMB126 billion.

Future Outlook

Lead and Zinc Ore Industry Focusing on Energy Saving and Environmental Protection

Energy saving and environmental protection can be regarded as main trends for the development of China non-ferrous metal industry in the future. Enterprises concentrating on non-ferrous metal resources recycling and regeneration are expected to get more policy supports. In the meanwhile, the government has issued entry criteria for regenerated lead enterprises. In the following years, it is expected to bring large energy saving in the recycling of lead and zinc.

Lead and Zinc Ore Industry Shift to International Operation

Since 2000, the leading Chinese enterprises in the lead and zinc ore industry began to develop resources in Australia, Pakistan, Mongolia, and Iran. Under the condition of economic globalization, China zinc and lead ore industry finished the integration of products and resources and started the international operation based on the development of overseas resources. For example, in 2009, China Minmetals Corporation acquired Australia OZ Minerals. According to the preliminary statistics, there are about ten Chinese zinc and lead ore enterprises who have exploited lead and zinc ore resource in Mongolia, Canada, Australia, Algeria, Tajikistan and Pakistan, respectively.

Lead and Zinc Ore Industry Speeds up Industrial Restructure

Lead and zinc ore industry is likely to speed up the industrial restructuring. The whole industry is encouraged to utilize more advanced production technology and facilities, increase the environmental investment, eliminate small-scale enterprises and focus on energy-saving and environmental protection. In 2010, Ministry of industry and information Technology of the People's republic of China published to eliminate 18 units of backward capacities which included 0.1 million tons of zinc smelting and 0.2 million tons of lead smelting. Governments in different provinces have strengthened supervision and finished out the task. Especially, Hunan province firstly started plans of eliminating sintering machine, and then, the other places proactively utilize advanced technology to replace the backward lead and zinc smelting technology.

Media Contact:

Zhenhua Chen
Corporate Communications – China
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SOURCE Frost & Sullivan