Financial Resource

output.  As such, spot nickel prices on the domestic  market  will  remain weak, between RMB 41,100 (,000) and RMB68,500 (,000) per ton. Only 60 percent of China’s total 12.05 million tons of  stainless  steel  production capacity will be in operation next year, and   about  6.64  million  tons  worth  of  newly-added  domestic stainless  steel  production  capacity  will  remain  idle. According to Antaike  Information, China may produce 229,000 tons of nickel, measuredby nickel metal content, and nickel consumption may fall to 313,000 tons in 2009.

Zinc and lead

Zinc prices  on  the SHFE fell from a high of RMB 23,000 (,364.44) perton in March to the year’s lowest point of RMB 8,400 (,228.75) per tonon Dec.  8.  As  demand  dropped  considerably after the outbreak of the financial  crisis,  major  domestic  zinc  producers  cut production and postponed  new  production  facilities  from coming online. For example,Huludao  Zinc Industry Co. Ltd. and Yunnan Luoping Zinc, Electricity Co. Ltd. and  other  major  Chinese  zinc  smelters cut output by between 25 percent and 30 percent of their total production capacity.

According  to  Antaike  Information  China  is  expected  to produce 3.9 million  tons  of  zinc  in  2008,  up  4.28  percent year-on-year. Zinc consumption  is  expected  to  reach  3.7  million  tons in 2008, up 2.7percent year-on-year.

In 2009,  China’s  zinc  consumption may fall below this year’s level as the country’s economic growth continues to slow. In particular, Interfax believes  the government’s stimulus policies will not be as effective as expected.

Meanwhile,  Chinese  smelters  are  likely  to shut down more production  facilities  to  reduce  losses  on falling demand, which may reduce China’s 2009 zinc surplus when compared to this year.

If market  conditions  worsen  next year, and more production facilities are closed,  the  government may resume export tax rebates on high-grade zinc or  lower  export  tax  rates for certain zinc products in a bid to boost exports.

Lead consumption  is  expected to grow by 8 percent year-on-year to 2.75 million  tons  in  2008,  according to Antaike Information. China’s lead production  is  expected  to  grow  by  9.3 percent year-on-year to 3.05 million tons in 2008, leaving the market in a surplus.

The outlook  for  China’s lead industry is uncertain for next year, with the possibility  of  a  market  surplus as demand may slide with China’s expected  slower  rate  of  economic growth. The country may also see an increase  in lead production as there are many newly-built lead smelting facilities on hold at present, which may commence operations next year.

Gold

Since its  debut on the SHFE on Jan. 9, gold futures prices saw volatile fluctuations  throughout  the  year,  closing at RMB 185.84 (.18) pergram on  Dec.  25, down 16.66 percent from its first day of trading. The Hong Kong Futures Exchange also launched gold futures trading on Oct. 20 this year,  although few investors have been tempted by the new products due to the  likelihood  of  minor  gains  at  best and the immature gold trading system.

Domestic  spot  gold  prices  in  2008,  which  tracked SHFE prices, and tightened   finances  have  forced  China’s  gold  mining  and  refining companies  to  slow  production.  China’s  gold output in 2008 will only reach around 275 tons, instead of the previously forecast 300 tons.

International  and  domestic  gold  prices in 2009 are expected to rally upwards, given the supply shortfall, and the increasing demand for gold, which is   popular   during   recession-time.   However,   the  possible strengthening  of the U.S. dollar against the Euro in 2009 may support a higher U.S.  Dollar  Index, which would undermine the upward movement of international gold prices.

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