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Impact of the Decontrol of Silver Concentrate Processing Trade on China’s Lead Market

In early June, two lead factories of Henan Jinli, and Yuguang Gold & Lead announced they have obtained silver concentrate Processing Handbook. Market analysts considered that decontrol on contract processing of silver ore will aggravate the pressure on lead ingot supply in China.

In fact, this matter can be traced back to November last year. On November 10, 2015, the Ministry of Commerce and the General Administration of Customs lifted the ban on processing trade of silver ore gravel and concentrate.

It has been learned that, up till now among domestic enterprises which have received handbook for silver concentrate contract processing trade, apart from Henan Jinli and Yuguang, there are also Hunan’s Jinwang, Jingui, and Yuteng.

Before this time’s decontrol, in China Hunan Jinwang and Guoda had the Processing Handbook. According to Customs data, total export in 2015 is 50000 tonnes of lead ingot, 99.9% is contributed by contract processing of silver ore.

Nevertheless, this time the definition of Processing Handbook differed from previous handbook for Guoda and Jinwang. Excluding silver metal in the concentrate, costs of other metals temporarily do not enjoy the benefit of tax exemption for contract processing, which is contrary to previous policy. Therefore, lead metal which accompanies silver ore will be left in China. This can be verified from customs data. From January to March, China’s export of lead ingot averages 3748 tonnes each month, but in April it dropped sharply to 769 tonnes, which is mostly associated with this policy.

The decontrol of silver ore contract processing temporarily did not attract massive entry of silver concentrate, the main reason on the one hand is that it is a trial stage, the progress is slow, furthermore operation management, capital pressure and limited resource all constitute restraint factors. Therefore, from the whole year perspective, silver ore contract processing is unlikely to trigger booming situation. According to SMM statistics, processing silver concentrate planned by a number of enterprises by the end of the year may bring close to 200,000 tonnes of lead ingot. Although it is difficult to fulfill the plan, assuming half of the figure is fulfilled, namely 100,000 tonnes, this year 100,000 tonnes of lead ingot will be retained in China with the contract processing of silver ore, which will increase the supply of domestic lead ingot, and aggravate the pressure of lead supply surplus in this year.