Asian Metal: What are your thoughts on the economic landscape in the United States, China and Europe in 2015 and what are the factors that will exert the greatest influence on the nonferrous metal price trends?

Xu: The recent economic indexes and employment data from the United States together paint a healthy picture. The Federal Reserve (or FED) also showed confidence in the US economic recovery in its accounts meeting minutes that the rates will be raised in mid-2015. However, at the same time, the situation in China and Europe will be unfavorable this year. The employment rate, PMI indexes and public fiscal deficits in Europe remain worrisome, as no more easing policies can be implemented. As for China, it is still in the process of economic restructuring and I don’t think any aggressive policies can be expected. The funds have been confined within the financial system instead of flowing into industry as a whole, in spite of the stimulus package of interest rate cuts and reserve requirement ratio (RRR) cuts by China. Overall, the dollar index and crude oil price trend will significantly impact the non-ferrous metal prices.

Asian Metal: The zinc price plummeted early on this year, even falling back to the levels of June, 2014. This feeble showing was incapable of providing sufficient impetus despite the price rebounding recently. What’s your opinion on the zinc price in the first quarter?

Xu: The fundamentals of zinc have been reflected in the price of refined zinc. The tumbling prices can be put down to the pressure on copper prices. In view of the continuing decline in copper prices, most investors have had difficulty in offloading copper and therefore turned to zinc dumping. In 2015, the capacity expansion will be relatively limited and the operating rate will generally be above 80%. It will be hard for demand to improve in the first quarter and the stocks of enterprises will be growing. However, the total inventory may remain at a low level. As a result, I think zinc prices in the first quarter of 2015 may still hover in the range of RMB15,500-16,500/t (USD2,478-2,638/t) with no possibility of sliding further.

Asian Metal: The SHFE/LME ratio has moved above 7.6 and arbitrage is accessible. Imported zinc is affecting the domestic zinc prices to some degree at present, so what’s your prediction regarding refined zinc imports in 2015?

Xu: China’s refined zinc imports totaled 56,990 tonnes in 2014. Owing to the low SHFE/LME ratio, the profitability of refined zinc imports was limited in the second quarter of 2014. The exchange rate fluctuations were also unfavorable for Chinese imports and it was even tougher for imported zinc moving into the Chinese market, in addition to some refined zinc exports. So most zinc imports were kept in the bonded area with the volume up to 20,000 tonnes at its highest and end-user demand from industry as a whole continued to shrink. If the SHFE/LME ratio stays above 7.6, Chinese refined zinc imports in 2015 will maintain the levels of 2014 or decline slightly. We estimate there will be even wilder two-way fluctuations in the RMB exchange rate and imports of refined zinc and zinc alloys are expected to decrease moderately with the minimum amount being 50,000 tonnes.

Asian Metal: How has the new Environment Protection Law influenced zinc smelters and will it support the zinc price?

Xu: Today, almost all zinc is produced hydrometallurgically and the acid tanks in the zinc hydrometallurgy process are sealed when operating, which is cleaner than other metal smelting operations. As a result, the new Law has had little impact on zinc smelters and it’s only zinc ores that may be affected, if at all. However, the zinc ores and lead ores are separated in the mining process, so the impact will be kept to a minimum. In my opinion, zinc prices will not be influenced by the introduction of the new Environment Protection Law.

Asian Metal: Based on our statistics and forecasts, the operating rate for Chinese zinc smelters reached 76% in 2014, while in 2015 it is expected to hit 80% with zinc production increasing by at least 250,000 tonnes. What do you think downstream demand for refined zinc will be like in 2015?

Xu: I think the demand for refined zinc in 2015 will see a continuous and moderate increase. According to our statistics, demand for refined zinc in 2015 is up by 5%, and I think it will keep in line with that of 2014 or fall back slightly. Although some major smelters are still boosting production, a large number of small galvanized plants have been shutting down one after the other. Besides, any retreat in growth rates, despite the sustained increase in automobile production and continuing slump in the construction industry, will also contribute to stabilizing Chinese GDP at around 7.5% in the long term. As a result, it is hard to see the downstream demand for refined zinc increasing substantially in 2015.

Asian Metal: What is your prediction for the refined zinc price trend in 2015?

Xu: Throughout the whole of 2014, the global economy maintained moderate growth levels despite the fact that the structural adjustment after the financial crisis was still wasn’t over, and this had led to divergent economic situations in different countries, which encumbered global economic growth. In respect of the relatively stable global economy, zinc consumption will keep increasing with market fluctuations mainly from the supply side. Although the two large overseas mines will be closing in the middle of 2015, the rapid production growth at Chinese mines will impose additional uncertainty on the international concentrate market. We predict the supply tightness of zinc ores will initially show up in 2016, while in 2015 it will be far from influential. The domestic output from zinc smelters can generally be guaranteed. The new capacity and controlled capacity of some zinc smelters in the past few years may be released in 2015 with the expectation that the zinc supply tightness will be offset by the zinc production growth. It is predicted that the price for Chinese refined zinc will hold up at RMB15,500-17,000/t (USD2478-2718/t) and the outer disc price will stay at USD2,000-2,300/t.