Bloomberg reported that zinc imports by China may be capped even after the government lowered tariffs on shipments of the metal as record domestic stockpiles curb demand for overseas purchases. Mr Wang Xiang an analyst at Cofco Futures Company said that “Zinc isn’t something China is really short of, like copper, so the tariff cut won’t really help imports. Net imports may grow 20,000 tonnes or 7% to about 300,000 tonnes this year unchanged from an earlier estimate.” Mr Wang said that zinc, the worst performer on the Shanghai Futures Exchange this year has fallen 13% as stockpiles climbed to a record. The duty on imports will be cut to 1% from 3% starting from July 1st 2011. Mr Annett Huang chief China representative of the International Zinc Association said that “China’s consumption won’t grow as fast as last year as downstream sectors including auto slow down. So the duty cut won’t be able to boost imports.” Zinc for delivery in September on the Shanghai Futures Exchange closed today 1.5% lower at CNY 17,190 including 17% value added tax. Three month zinc on the London Metal Exchange fell 0.8% to USD 2,236 per tonne. According to data provider SMM Information & Technology Company, total zinc stockpiles in China reached 628,500 tonnes in mid April and fell to 598,500 tonnes at the end of June. Mr Lei Xiaoli analyst of SMM said given the supply glut, domestic prices may be under greater pressure in the short-term, and this means imports will continue to be unprofitable, even after the duty cut. According to the General Administration of Customs, China’s zinc imports halved to 323,354 tonnes last year while exports totaled 43,143 tonnes. In the first 5 months of this year, imports rose 16% from a year ago to 141,955 tonnes. Mr Lei said that zinc for immediate delivery in Shanghai is traded at 17,100 per tonne while many smelters need the price to reach 17,500 per tonne to be profitable, so perhaps the policy is aimed at curbing domestic capacity growth as this would be another blow to the smelters. According to the National Bureau of Statistics, China produced a record 5.27 million tonnes of zinc in 2010 up 20% from the previous year. Output in May fell 3.7% to 419,000 tonnes from 435,000 tonnes in April. Barclays Capital said that the weakness in output represents to us conscious smelter production cuts in response to lower demand from the galvanized steel sector. We view this zinc data as a bearish representation of weak Chinese fundamentals. Mr He Qi head of research at Yinjian Futures Company said that “A power shortage in the months ahead and falling treatment charges may lead to a further drop in zinc output in the coming months which could be a reason for the cut in import taxes.”

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