LONDON, Feb 8 (Reuters) - China returned to being a major net importer of refined zinc last year after a brief inversion of historical trade flows in 2022.
A combination of Western smelter closures and snarled shipping logistics that year led to record-high physical premiums, with Chinese exports serving to rebalance the global market.
The smelter problems haven't gone away. Indeed, Nyrstar announced last month it was fully idling its Budel plant in the Netherlands. But Western demand for zinc is lacklustre, particularly from the key construction sector, and China is once again soaking up Western surplus.
China's lead trade also inverted in 2022 for very similar reasons, but there has been no return to past trading patterns. Exports rose further in 2023 and there is no sign that they are going to stop any time soon.
ZINC BUSINESS AS USUAL
China's exports of refined zinc surged from 5,000 metric tons in 2021 to 81,000 in 2022 as metal gravitated to the West on a combination of higher physical premiums and persistent tightness on the London Metal Exchange (LME).
Outbound shipments fell back to just 9,000 tons in 2023 as Western markets loosened.
LME stocks rebuilt from a marginal 27,750 tons in January to
223,225 tons at the close of December. The benchmark LME
cash-to-three-months spread
China's zinc imports began accelerating around the middle of last year, and the full-year tally of 380,000 tons was almost five times higher than the previous year's count.
The country flipped back from being a rare net exporter in 2022 to net importer to the tune of 371,000 tons in 2023.
There's no reason to believe that trade patterns will change much in the immediate future.
The Western market shows every sign of being in significant oversupply.
LME zinc spreads remain in contango and the three-month price, currently trading around $2,360 per ton, is down by 10% on the start of January, making it the underperformer of the LME pack so far this year.
LME stocks have jumped by almost 20,000 tons over the last two days, and after dropping in January headline inventory is back above the 200,000-ton mark.
Tellingly, not one analyst participating in the January Reuters poll expects the zinc market to be in anything other than supply-demand surplus this year.
China looks set to absorb some of that glut just as it did before 2022, when annual refined zinc imports ranged from 400,000 to 700,000 tons.
EXPORTS THE NEW NORMAL FOR LEAD
China was a consistent net importer of refined lead over the 2017-2020 period, but shifted to being a net exporter in 2021.
Since then outbound flows have steadily increased from 95,000 tons in 2021 to 116,000 in 2022 and to 188,000 in 2023. Last year's tally was the highest annual total since 2007.
As with zinc, the turnaround in trade patterns was initially a rebalancing mechanism for a Western market that was running short of metal due to smelter closures and logistics bottlenecks.
But there has been no reversion to historical trends. Imports remain minimal and outbound volumes have just carried on accelerating in recent months.
Some of what was exported last year seems to have gone straight to LME warehouses in Taiwan. The ratio of Chinese lead in the LME storage system rose from zero at the start of 2023 to 25% by the end of the year.
Some of the exports have displaced other material in Asian markets, and they continue to do so with a knock-on impact on LME stocks.
Lead is pouring into LME storage in Singapore at the moment, with 43,000 tons warranted since the middle of January.
LME headline stocks have mushroomed from 25,150 tons at the start of 2023 to a current 144,425 tons.
What started as a rebalancing with depleted Western markets now appears to be evolving into a more structural shift in trade.
It's worth noting that China's higher refined lead exports have been accompanied by rising shipments of lead batteries, particularly vehicle batteries. Export volumes of the latter grew strongly by 25% in 2023 relative to 2022.
The country is the world's most developed market for electric vehicles, and although most brands still use a lead-acid battery for auxiliary functions such as ignition and lighting, it tends to be significantly smaller than that used in a conventional internal combustion vehicle.
It's possible that as China's own demand for lead batteries wanes, it is exporting domestic surplus of both batteries and the lead that goes to make them.
While Western policymakers fret over China's dominance of electric vehicle battery supply chains, its growing lead exports suggest an equal growing dominance of the oldest battery storage material of them all.
The opinions expressed here are those of the author, a columnist for Reuters.
(Editing by Jan Harvey)
