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Chinese Environmental Crackdown Could Lift Commodity Prices

Beijing

I’ve been writing the last few weeks about the unfolding metals supply crisis in China. Triggered by a wave of environmental checks at mining and processing facilities across the country. 

One of the big questions is: how much production will be impacted by the environmental crackdown?

And this week, we began to get answers. 

Key producer China Minmetals confirmed Monday that it has been targeted by environmental regulators. With the company saying it will be forced to complete a massive upgrade of its smelting facilities. 

Those smelters are primarily located in the province of Hunan. Where regulators said they found widespread environmental damage at Minmetals facilities located along major waterways. 

Faced with those findings, Minmetals will now launch an upgrading program at its smelters. At a reported cost of 10 billion yuan, or about $1.5 billion. 

Those upgrades will affect Minmetals’ output of copper, lead and zinc. The company didn’t specify exactly how much production will be impacted, but given the financial scale it’s likely a significant amount of output is involved. 

Some or all of that production will almost certainly have to be halted during the upgrading work. Meaning recent supply loses from closures for environmental inspections will now be extended for months. 

That’s going to make Chinese supply of copper and lead/zinc tighter for longer. Meaning we could see continued upward momentum in import demand to fill the gap.  Related: Is OPEC Throwing In The Towel On U.S. Market Share?

It’s also critical to remember: this is just the first firm targeted publicly by environmental regulators. With a fourth round of checks just wrapping up, we could see more firms and facilities being shut for upgrades like these. 

This will continue to be one of the biggest stories for global mining and metals prices. Watch for more news on closures, as well as stats on Chinese metal production and imports.

Here’s to taking a breather.

By Dave Forest

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