China Earthquake Affects Base Metals

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Our thoughts and prayers are with the people of China after the Sichuan earthquake this Monday, a 7.9 magnitude earthquake and the second deadliest earthquake in Chinese history. The Sichuan death toll has nearly reached a devastating 15,000, and the numbers continue to escalate.

Aftershocks continue to hit the region, and the horrific earthquake and aftershocks will have an affect on the metals industry. Yesterday, the Financial Express predicted that the earthquake will cause lead, zinc and aluminum, major commodities from China, to see some disruptions in their production. The Express also noted that “damaged facilities and disrupted power supplies are expected to affect aluminum smelters.”

In addition, zinc smelters in China have halted production, which we expect will result in a definite impact for zinc. Zinc price increases of seven percent were witnessed this week, likely due to fears about the supply base. When we look to the long-term, though, only damaged zinc plants will be affected, since these smelters need more time for repairs. For others, the production is halted short-term for safety reasons and aftershocks.

“It is estimated that nearly 4-5 lakh tonne of zinc smelting capacity has been closed, according to the latest report released on base metals by Karvy Comtrade Ltd. The affected capacity in Sichuan and neighbouring Shaanxi and Gansu provinces would be around 11% of China’s total zinc smelting capacity,” reads the article. The Express also quotes Ashok Mittal, vice president of Karvy Comtrade: “Any further news of production halt or supply disruptions may drag the metals prices higher especially for zinc, lead and aluminum. However, a huge rally is not expected as all the stated metals are expected to be in surplus this year. The higher prices will be for the shorter term and may not be sustainable for the longer period.”

–Amy Edwards

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