Futures Daily: Remarkable Success of Nonferrous Metals Futures in Serving Real Enterprises

Updated on Sep 12,2014

September 12, 2014

By Lu Shuangmei

The Futures-Spot Combination (Lead, Zinc) Senior Seminar organized by the Shanghai Futures Exchange (SHFE) opened yesterday in Beijing. Li Qiang, former Vice President and Secretary General of the China Futures Association, Peng Tao, Executive Vice Secretary-general of the Lead and Zinc Branch of the China Nonferrous Metals Industry Association, and Zhang Ronghui, Chief Analyst of China Minmetals Corporation made detailed explanations on the situation of nonferrous metals enterprises’ participating in the futures market, the circumstance and development trend of domestic lead and zinc industry, and the situation of domestic and foreign lead and zinc market and the future price trend of lead and zinc respectively.

Li Qiang introduced that currently the position-holding proportion of nonferrous metals futures accounts for 21.18% of the total futures market in China and, among all legal persons participating in the futures market, the nonferrous metals business entities take up 33.75%. There are 260,000 scaled spot enterprises related to futures products in China. However, less than 4,000 of them have entered into the futures market. Particularly, among the top 100 steel enterprises in China, only 3 have entered into the futures market, while the participation ratio of nonferrous metals enterprises has exceeded 50%.

Li Qiang also said that since 2011, the average profits of steel and coal industries have decreased sharply. In contrast, the profits of the nonferrous metals industry have remained stable on the whole, but it also has its own pressure. “Currently, the nonferrous metals enterprises’ profits are very meager, but foreign exchange and interest rate present great fluctuation. The slight fluctuation of foreign exchange and interest rate might lead to the loss of the enterprises’ profits.” Li Qiang said that many nonferrous metals enterprises have used the futures market to effectively lock in raw materials’ purchase cost and products’ sales prices, thus avoiding the fluctuation risk of foreign exchange and interest rate and realizing the stable operation.

Peng Tao said while introducing the circumstance of domestic lead and zinc industry that the zinc output of this year is expected to exceed 5.5 million tons and the rate of operation of this industry will remain at a relatively high level.” The zinc output of 512,000 tons last month in China created the new record high in a month, which will undoubtedly be broken.

He believed that the lead’s consumption situation is less optimistic than that of zinc. As the secondary lead enjoys the advantages of short circulation and low energy consumption, its profits is relatively good, which has to some extent taken down the processing cost of the whole industry; however, the profits of primary lead has been damaged partly.

The situation of the nonferrous metals smelting industry has turned better. It is learnt that only one, among all the 14 listed lead and zinc companies in China, suffered losses in the first half of this year. The business index of nonferrous metals industry in mid-July was 55.3, breaking the “relative low” section and entering into the “normal” one. According to Peng Tao, the economic operation of nonferrous metals industry has recovered and turned better but there still exist the structural contradictions and uncertain factors in the industry, including the insufficient capacity of mine guarantee, the over capacity of smelting, the homogeneous competition, the weak international industry competitiveness, and the increasing restriction from resources, energy, and environment.

When talking about the future price trend of lead and zinc, Zhang Ronghui said that some mines will be closed in the first half of next year and there will be a new round of rise for zinc. The zinc prices have remained low for five or six years and are now coming to the turning point.

Zhang Ronghui said that the institution predicts that from a medium and long term perspective, there will be a great insufficiency of zinc in recent years. Later, the zinc prices will go up with fluctuation and the highest level of next year will be US$2,500-3,000 per ton, and the zinc price in Shanghai is expected to reach RMB18,000 per ton.

With regard to lead, he said that the output of refined lead in the world will continue to fall and its consumption will present a restorative growth. The lead storage is falling, but still remaining at a high level. And the price difference of lead and zinc is expanding. “From the fourth quarter of this year to next year, the lead consumption will not grow sharply. The rise of zinc prices will definitely lead to the rise of lead prices. But due to the insufficient adjustment of lead prices, its rise amount later will be limited.”

“The sharp fall of lead, zinc, and aluminum will be a good opportunity to purchase and the later performance of zinc and aluminum might be better.” Zhang Ronghui suggested that investors buy first and sell later. It would be better for investors to close the position after gaining some profits, and they will run higher risks to sell at low prices.