Coronavirus Dents Chinese Zinc Production

The coronavirus outbreak in China has claimed a significant industrial scalp, with Henan Yuguang Gold and Lead (SHA:600531) revealing on Thursday (February 13) that it is shuttering half of its zinc production capacity due to difficulties moving large quantities of sulfuric acid, a by-product.

Yuguang is one of China’s largest producers of zinc and lead and has an annual zinc smelting capacity of 300,000 metric tons.

According to Reuters, the company’s sales director said that the large quantities of sulfuric acid that Yuguang has been unable to move, as well as shrinking demand for the metal due to ongoing quarantines and lockdowns, means it had no choice but to limit production.

The coronavirus (now known as COVID-19) outbreak has so far claimed more than 1,300 lives in mainland China, with almost 60,000 cases worldwide — though the vast majority are within China and within the province of Hubei.

The Yuguang zinc smelting capacity is located with the province of Henan, which borders Hubei.

The sales director also said that while the company’s zinc smelting is being reduced, its lead and copper output is still going strong. The company has an annual capacity of 400,000 metric tons of lead and 150,000 metric tons of copper.

The moving of excess sulfuric acid has been an issue for base metals producers around the country, with a Wood Mackenzie report identifying the storage of acid as a primary challenge for Chinese copper smelting capacity.

“(WoodMac) understands Hubei accounts for roughly 20 percent of total sulfuric acid consumption in China, which it sources from local smelters as well as those in neighbouring provinces, including Jiangxi, Anhui and Henan,” said analysts in a WoodMac report on copper.

In an email to the Investing News Network, Stefan Ioannou of Cormark Securities said that “the base metals have already been hit pretty hard” in early February; he noted that troubles in the sector have erased any positive sentiment or gains made in early 2020.

“Further impact will likely be dictated by better clarity with regards to a timely resolution (or lack thereof),” he said.

Ioannou also noted that prior outbreaks in China have preceded bouts of government stimulus to get the economy going again through the construction of infrastructure and housing — sectors that consume the materials that are currently getting hit.

“Some leading market forecasters say this could end up having a positive impact to their 2020 outlook. China’s National People’s Congress is on March 5 to discuss policies for the year — timing that will likely prove interesting given the ongoing situation,” said Ioannou.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

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