The supply of concentrate remains abundant.

　　Dragged down by sluggish market conditions, Glencore announced in early Q4 2015 that it would cut production of zinc concentrate by 500,000 tons and lead concentrate by 100,000 tons in 2016. As a result, processing fees for imported lead and zinc concentrates showed a downward trend in Q4 2015. However, due to weather conditions and the upcoming Spring Festival holiday, domestic smelters all maintained relatively high inventories of raw materials in Q4 2015, keeping domestic processing fees at relatively high levels. Smelters continue to enjoy ample supplies of raw materials. Considering also the current port inventory situation, it is expected that the abundant supply of concentrates will persist into the first quarter of 2016.

　　Smelting output continues to diverge.

　　The supply of refined concentrates remains ample, which will continue to support the normal operation of lead and zinc smelters in the first quarter of 2016. However, considering the Spring Festival holiday and weak downstream demand, the growth rate of primary lead and zinc production may slow down slightly. In the first quarter of 2016, recycled lead production will still be constrained by the narrowing scope of VAT refunds, and recycling plants are more likely to be affected by the Spring Festival factor. It is expected that refined zinc production in the first quarter of 2016 will increase by around 6%, while refined lead production will continue to post negative growth.

　　Take a more relaxed view of lead and zinc consumption in the first quarter.

　　In the fourth quarter of 2015, the peak season for refined lead consumption showed a slight uptick. However, this early surge has already exhausted much of the battery demand from the electric bicycle sector. Additionally, in February, the operating levels of power battery manufacturers typically remain low. As a result, market participants are pessimistic about China’s refined lead consumption in the first quarter of 2016. Zinc consumption is closely tied to China’s economic performance; most market observers expect China’s economic growth rate to continue slowing down in 2016. Consequently, in the first quarter of 2016, growth rates in the galvanizing, die-casting, zinc oxide, copper products, and battery sectors are likely to keep contracting, thereby weighing on refined zinc consumption.

　　Industry prosperity may continue to decline.

　　Overall, in the first quarter of 2016, production activity at China's lead and zinc mines was even more subdued. However, raw material supplies for smelters are unlikely to tighten in the short term, and smelters continue to maintain relatively high operating rates. Demand, constrained by the Spring Festival and the broader economic environment, may show a month-on-month decline. As a result, the fundamental outlook for China's lead and zinc market has slightly deteriorated. Moreover, investment in the lead and zinc industry during the first quarter is typically weak, suggesting that industry sentiment is likely to continue declining in the first quarter of 2016.

　　The expected price range for domestic spot lead and zinc ores in the first quarter of 2016 is as follows: lead—RMB 12,000 to RMB 13,500 per ton; zinc—RMB 12,000 to RMB 13,500 per ton.