620
C. Hassall
growth in Chinese zinc demand earlier in this paper but, though there are zinc smelting
projects on the drawing board in China at present, these may be subject to delays or
cancellation, and further closure of existing smelting capacity cannot be ruled out.
This means that there is significant potential for Chinese refined zinc imports to be
little changed from recent average levels over the next 4–5 years.
Chinese zinc producers are not an integrated part of the supply network for manufacturers using zinc in the rest of the world, thereby reducing supplier choice for
these non-Chinese first-use consumers. There are, to the very best of our knowledge,
no long-term supply contracts between Chinese refined zinc producers and zinc
consumers outside China. The Chinese zinc market is effectively ring-fenced by the
imposition of VAT on exports, which makes exporting zinc commercially non-viable
for Chinese producers, unless LME zinc trades at a significant premium (~ + 13%)
to Chinese domestic prices. This means that, at times when the Chinese zinc market
is in surplus and/or the LME price is less than 13% higher than the domestic price,
the option to export zinc to the rest of the world is effectively closed. China imports a
certain amount of zinc to meet domestic demand, but further imports may be made for
purely financial reasons related to the differential between domestic prices and LME
prices plus regional premia. These differences at times may simply reflect market
(speculative) sentiment, with little grounding in supply/demand fundamentals.
However, this does not imply that Chinese-produced zinc does not leave China.
Indeed the opposite is true but the exports take place as zinc used in semimanufactured and manufactured goods, such as a multitude of zinc diecastings (the
majority as parts in other final manufactured goods), galvanized sheet, and other
galvanized steel products, a very important factor in reducing zinc demand outside
China since the early 2000s. With slowing of fixed asset investment in China, including infrastructure build, and a loss of competitiveness to other countries for many
manufactured goods, Chinese industry has begun to move its production offshore
to lower cost locations such as Vietnam, while the Chinese government, through
initiatives such as Belt and Road projects outside China, has sought, amongst many
other things, to provide alternative markets for domestic industries previously largely
engaged in meeting local infrastructure needs. For instance, Chinese funding has been
instrumental in widespread investment in developing rail and power transmission networks in Africa and this is reflected in Chinese exports to various African countries
of steel towers, rail, and other products associated with these projects. Though this
has provided markets for Chinese producers of these steel products, rather than creating opportunities for domestic suppliers of steel products in the countries in receipt
of the infrastructure, there are undeniably also huge benefits for African economic
development (Fig. 3).
In many instances, provision of Chinese galvanized steel products to BRI projects
may be necessary if there is no local capability to produce them. But for many
countries, particularly in Asia, this is not the case. Following the April 2019 BRI
forum in Beijing, there has been some renegotiation of projects taking place, both
scaling down project size to reduce project debt and increasing pressure for local
production of inputs into projects where there is already local capacity to do this.
Essentially, what this means is that Chinese funding of offshore BRI projects is
C. Hassall
growth in Chinese zinc demand earlier in this paper but, though there are zinc smelting
projects on the drawing board in China at present, these may be subject to delays or
cancellation, and further closure of existing smelting capacity cannot be ruled out.
This means that there is significant potential for Chinese refined zinc imports to be
little changed from recent average levels over the next 4–5 years.
Chinese zinc producers are not an integrated part of the supply network for manufacturers using zinc in the rest of the world, thereby reducing supplier choice for
these non-Chinese first-use consumers. There are, to the very best of our knowledge,
no long-term supply contracts between Chinese refined zinc producers and zinc
consumers outside China. The Chinese zinc market is effectively ring-fenced by the
imposition of VAT on exports, which makes exporting zinc commercially non-viable
for Chinese producers, unless LME zinc trades at a significant premium (~ + 13%)
to Chinese domestic prices. This means that, at times when the Chinese zinc market
is in surplus and/or the LME price is less than 13% higher than the domestic price,
the option to export zinc to the rest of the world is effectively closed. China imports a
certain amount of zinc to meet domestic demand, but further imports may be made for
purely financial reasons related to the differential between domestic prices and LME
prices plus regional premia. These differences at times may simply reflect market
(speculative) sentiment, with little grounding in supply/demand fundamentals.
However, this does not imply that Chinese-produced zinc does not leave China.
Indeed the opposite is true but the exports take place as zinc used in semimanufactured and manufactured goods, such as a multitude of zinc diecastings (the
majority as parts in other final manufactured goods), galvanized sheet, and other
galvanized steel products, a very important factor in reducing zinc demand outside
China since the early 2000s. With slowing of fixed asset investment in China, including infrastructure build, and a loss of competitiveness to other countries for many
manufactured goods, Chinese industry has begun to move its production offshore
to lower cost locations such as Vietnam, while the Chinese government, through
initiatives such as Belt and Road projects outside China, has sought, amongst many
other things, to provide alternative markets for domestic industries previously largely
engaged in meeting local infrastructure needs. For instance, Chinese funding has been
instrumental in widespread investment in developing rail and power transmission networks in Africa and this is reflected in Chinese exports to various African countries
of steel towers, rail, and other products associated with these projects. Though this
has provided markets for Chinese producers of these steel products, rather than creating opportunities for domestic suppliers of steel products in the countries in receipt
of the infrastructure, there are undeniably also huge benefits for African economic
development (Fig. 3).
In many instances, provision of Chinese galvanized steel products to BRI projects
may be necessary if there is no local capability to produce them. But for many
countries, particularly in Asia, this is not the case. Following the April 2019 BRI
forum in Beijing, there has been some renegotiation of projects taking place, both
scaling down project size to reduce project debt and increasing pressure for local
production of inputs into projects where there is already local capacity to do this.
Essentially, what this means is that Chinese funding of offshore BRI projects is