The Most Essential and Authoritative Source for Chinese Metals Market. Lead, Zinc & Tin Monthly May 2012 No INSIDE THIS ISSUE Highlight

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1 The Most Essential and Authoritative Source for Chinese Metals Market Lead, Zinc & Tin Monthly May 2012 No. 185 Hosted by: China Nonferrous Metals Industry Association Published Monthly by: Beijing Antaike Information Development Co., Ltd. Chief Editor: Feng Juncong (Ms.) Executive Editor: Hu Yongda Editor: Raymond Zhang Research Team: Pb: Raymond Zhang, Zhang Weiqian (Ms.), Liu Mengluan; Zn: Raymond Zhang, Guo Chunqiao, Fan Jiaqi (Ms.) Sn: Sun Si (Ms.) Sales Manager: Mandy Niu Tel: Fax: Web site: Address: 7th Floor, No. 31 Suzhou Street, Haidian District, Beijing , P. R. China Disclaimer: Whilst every effort has been made to prepare this report, Beijing Antaike Information Development Co., Ltd. makes no warranty of any kind in regard to the contents and does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this report. All Rights Reserved The contents of this report are for the sole use of the client and its employees and may not be transmitted INSIDE THIS ISSUE Highlight Lead and zinc production resuming in Hechi, Guangxi....1 Market overview Zinc... 2 Lead Tin..19 News in brief Policies and Industrial News...24 Ningxia based lead smelters and battery manufacturers forced to be in clean production Pb-Zn-Au exploring licenses released in Chifeng of Inner Mongolia 24 Hebei to set daily supervising mechanism over dangerous waste treating processes. 25 Miners & Smelters Chihong fails to fulfill production plan for A 60ktpy lead smelting project commissioned in Ningyuan of Hunan.. 25 Hechi Nanfang Co., Ltd. fully resumes production 26 Downstream News A battery recycling project commissioned in Shanxi...28 Domestic small lead acid battery manufacturers to be widely merged or eliminated Statistics Chinese lead, zinc and tin output in Mar Chinese Lead in Concentrate Output by Region in Mar Chinese Refined Lead Output by Region in Mar Imports and Exports of Lead Products in Mar in any form whatsoever to third parties Beijing Antaike Information Development Co., Ltd. This issue was dispatched on March 31, 2012

2 Highlight Lead and zinc production resuming in Hechi, Guangxi The Hechi Govt. of Guangxi Zhuang Autonomous Region spent big force in regulating the local heavy metals related companies after the cadmium pollution incident happened in Longjiang River in Hechi City in middle January this year. Guangxi is one of the major lead and zinc mining and smelting regions in China, and a big part of the capacity is distributed in Hechi City. Nearly all the local lead and zinc miners and smelters were forced to suspend operation in Hechi. During the regulation, there were a total of 150 minerals mining, concentrating and smelting operations closed or suspended production in late January and early February. Among which, there were 50s smelters concerning combined refining capacity of 170ktpy lead and 380ktpy zinc. Up to the end of April, the Hechi Govt. had partially finished the regulation and authorized two batches of the suspended enterprises to restart production. For lead, Guangxi Chengyuan Smelter has restarted operation, which has capacity of yielding 80kt of refined lead each year. For zinc, the resumed smelters include Hechi nanfang Co., Ltd., Nandan Jinshan Indium & Germanium Co., Ltd., Hechi Jintai Resources Recycling Co., Ltd. and Nandan Jilang Indium Co., Ltd.. The total resumed capacity reaches 325 kt of refined zinc per year. The resumed mining & concentrating capacity concern Chehe Dressing Plant and Tongkeng Mine of China Tin Group and the operations of Guangxi Gaofeng Mining Co., Ltd.. The combined concentrating capacity of those operations is 4.4 Mt/y. Though restarted production, those operations are still facing many difficulties from the reopen of facilities and recollection of staff. It still needs a term for those operations to resume to normal production as before the regulation. Market Overview Zinc Zinc price fluctuates on a platform in April The LME zinc prices were moving in a platform in the most time of April. In late of the month, the prices became stable and represented a rebound. During the month, the LME zinc prices moved at US$ 1,950-2,050/t in early April, which were still under the press of the raised worry for the financial risk in Spain. In middle of the month, the dollar index turned down, but the zinc prices didn t show obvious rebound. At the end of April, the U.S. house data was better than anticipation, while the worry for European economy was partially eased by the strong demand for selling tender of European countries debt. The situation stimulated the zinc price to rebound. The monthly average price of LME 3-month zinc was US$ 2,004/t in April, down by 2.1% m-o-m and 16.1% y-o-y. The average price of cash month zinc was US$ 1,996/t, down by 1.9% m-o-m and 15.9% y-o-y. 2

3 LME 3-month zinc price Sources: LME, Antaike The SHFE zinc prices were basically following the LME market in April. By the end of the month, the domestic zinc prices rebounded in a range. The monthly average price of SHFE 3-month zinc was RMB 15,323/t in April, down by 1.2% m-o-m and 12.6% y-o-y. The average price of SHG zinc in domestic spot market was RMB 15,244/t, down by 1.4% m-o-m and 13.8% y-o-y. Sources: SHFE, Antaike SHFE zinc mainstream contract price 3

4 LME 3-month ($/t) Lead, Zinc & Tin Monthly, May 2012 No. 185 Zinc price on LME and SHFE LME cash-month ($/t) SHFE 3-month (yuan/t) Domestic SHG zinc spot (yuan/t) LME inventory(t) SHFE inventory(t) ,680 1,655 21,375 13, , , ,186 2,160 19,695 17, , ,735 Jan-11 2,383 2,371 18,933 18, , ,210 Feb-11 2,489 2,465 19,404 18, , ,096 Mar-11 2,364 2,341 18,492 17, , ,622 Apr-11 2,389 2,372 17,538 17, , ,631 May-11 2,180 2,160 16,721 16, , ,128 Jun-11 2,251 2,230 17,215 17, , ,768 Jul-11 2,418 2,390 18,245 17, , ,571 Aug-11 2,239 2,211 16,866 16, , ,784 Sept-11 2,100 2,076 15,755 16, , ,273 Oct-11 1,880 1,859 14,997 15, , ,288 Nov-11 1,941 1,935 15,222 15, , ,939 Dec-11 1,845 1,827 15,161 15, , ,186 Jan-12 1,994 1,980 15,354 14, , ,698 Feb-12 2,076 2,059 15,978 15, , ,127 Mar-12 2,048 2,034 15,514 15, , ,711 Ape-12 2,004 1,996 15,323 15, , ,489 Sources: LME, SHFE, Antaike The zinc inventory The LME zinc inventory was climbing continuously in April, which touched 913,630 tonnes on April 30, creating a historical new high. By regions, the additional zinc inventory was mostly occurred in North America and Europe that implies the zinc demands in the key zinc consuming regions are still weak. Different from LME, the zinc inventory in SHFE declined to 358,489 tonnes by the end of April, down by 17,616 tonnes against the end of the previous month. On the one side, the zinc smelting operations in Guanxi and Guangdong were affected by the environmental protecting regulation. Accordingly, the zinc stockpiles were consumed in a range in the regions. On the other side, the current zinc price is near the production cost of zinc refineries that forces some operations to cut production. Moreover, some smelters were reluctant to sell zinc in such a low level. Those factors jointly lead the SHFE zinc inventory down. The subtotal zinc inventory in LME and SHFE exceeded 1.27 Mt by the end of April, similar with a month ago. Besides, the zinc stockpiles in Chinese users and traders are quite big on the soft downstream demands. The big zinc inventory draws down the anticipation for zinc consumption and put a stress on the future zinc prices. It is still in the consuming pick season, but the inventory doesn t show a decrease. So, it would be difficult to reduce the big stocks in the next period. 4

5 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Zinc Inventory in LME Zinc Inventory in SHFE LME 3-month Zinc Monthly Average LME 3-month zinc price, LME zinc inventory and SHFE zinc inventory Zinc conc. production China produced Mt of zinc in conc. in Jan.-Mar. this year, up by 20.2% y-o-y, according to CNIA. The Chinese zinc mine production was still normal in April. Some small miners production was affected more or less by cash flow tightness, but which influenced the nation s total zinc conc. production little. However, the CNIA s statistics should be adjusted in some regions: Based on the CNIA data, Guangxi produced 91 kt of zinc in conc. in Jan.-Mar., up by 41% compared with the same period of the previous year. Actually, however, the local mining companies in Hechi City of Guagnxi were in suspension for near 2 months in the first quarter this year, which resumed production after early April. So, the big growth of zinc mine production could not be seen. Meanwhile, the zinc in conc. production in Inner Mongolia increased by 51% y-o-y to 216 kt in Jan.-Mar. in accordance with the data. But, local miners reflect the weather was pretty cold earlier this year in the region, and they were forced to delay the re-open time somehow compared with a year ago. In that case, the big increase of output was unreasonable in Inner Mongolia in the first 3 months. Totally, the Chinese zinc in conc. output increase rate should be less than 20%. The production kept stable growth in April, but the rate may not rise further. Currently, the zinc conc. price has become an active support to the domestic zinc price. The quotation of zinc conc. remained at around RMB 11,000/t, while the TC of homemade and imported materials was at RMB 4,400-4,900/t and US$ /t, respectively. The TC of imported zinc conc. was in uptrend in the past month that was mainly because of the shorter demand on the production reduction in domestic smelters. Even though, the Chinese zinc smelters are still less interested in importing. They find it more profitable in adopting homemade conc. rather than imported one. In that case, the zinc conc. import saw a yearly decrease in March. 5

6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Chinese zinc in conc. production Refined zinc production The data from CNIA show China produced 406 kt of refined zinc in Mar., down by 9% on a yearly basis. The accumulative zinc output in the first 3 months was Mt, down by 3.7% y-o-y. On one side, the domestic zinc smelters controlled their production on the consideration of high zinc inventory, weak downstream demands and the relative low zinc price. Meanwhile, the environmental protection regulation and the eliminating campaign of backward capacity affected the domestic zinc production too. The zinc smelters in Hechi of Guangxi were forced to suspend production in Feb.-Mar. due to a pollution incident. Though, most of those suspended capacity restarted in early April, they still need a term to resume normal production. Hechi produces about 300kt of refined zinc each year. The output in the city may still affect the nation s total zinc production data in April. Besides, Henan Yuguang Gold & Lead Co., Ltd. suspended the production of a 100ktpy zinc smelting & refining system for facility maintenance in April. The timetable for restart is still unknown. The other key zinc smelters mostly failed to realize full operation. So, the Chinese refined zinc production growth should be lower than the same period of recent years. Several listed zinc production companies released financial report for Q1, most of which show deficit or big decrease of profit in account. The decline of profit was mainly due to the much lower zinc price, weak demands and higher production cost. The domestic zinc smelters are experiencing a hard time that affects the production directly. 6

7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Chinese refined zinc production Zinc consumption The Chinese zinc consumption was still weak in the traditional pick season so far this year. The transaction didn t resume to similar level with the same period of last year. In April, the operation rate of galvanizing plants rebounded a bit against March, but the soft downstream demand made those galvanizing operations less activity in production. China produced a total of Mt of placed sheet in Mar., up by 15.2% y-o-y. There was a new galvanizing production line commissioned in late March, which belongs to Tianjin Xinyu Company. The operation has capacity of producing 200ktpy galvanized sheet. The low price and the soft demands have forced some galvanizing companies exit from the market. The existing manufacturers operates mainly in accordance with the order forms. In that case, the additional stockpiles reduced, while the old stocks were consumed partially. The current galvanized products inventory has been declined to a relative low level that supports the galvanized sheet price more or less. However, the weak demand is still a big disadvantage on the market. The consuming pick season in Mar.-Apr. has passed. The galvanized sheet price and consumption would be stable but less possible to show big growth in the coming month. 7

8 3,000 2,500 2,000 1,500 1, kt % 80.00% 60.00% 40.00% 20.00% 0.00% % 0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar % Chinese galvanied plate output Chn yoy % Chinese galvanized plate production According to the statistics released by China Association of Automobile Manufacture (CAAM), Chinese automobile production and sales was 4.78 mln units and 4.79 mln units in the first quarter, down by 1.8% and 3.4% y-o-y. Though showing a negative growth in the first quarter, the Chinese automobile sector s data was rebounding month by month in the period. The Chinese automobile production and sales was 1.88 mln units and 1.83 mln units in March, up by 16.9% and 17.3% m-o-m, and up by 3.4% and 1.0% y-o-y, which was in the highest level in among the same month of the past 3 years. According to the trend in the first 3 months, the Chinese automobile industry is likely to realize an increase rather than decline in production and sales this year. 2,000 1,800,000 units % % 1, % 1, % 1, % 1, % % % % % 0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar % Auto output Chn yoy % Source: CAAM Chinese automobile production 8

9 The home appliance market was a bit better in March against the previous month. The output of washing machine, refrigerator and air condition respectively increased by 2.3%, 7.8% and -3.4% y-o-y to 5,811 thousand units, 7,962 thousand units and 14,129 thousand units in March. In the first 3 months, the accumulative output of the three commodities was 14,972 thousand units, 19,802 thousand units and 33,783 thousand units. The export of domestic home appliance products was lower than anticipation mainly due to the debt crisis extension in Europe and the low speed resumption of U.S. economy. This year, the growth of home appliance products annual growth rate may decline to below 10%, which would affect the production in the sector. However, the domestic rigidity demand would support the consumption, while the pick season is coming. So, the production and sales in the sector will maintain a stable growth, though would be lower than the same period of last year. Chinese home appliance production in Mar., 2012, thousand units Commodity Mar. Chn (yoy) Jan.-Mar. Chn (yoy) Washing Machine 5, % 14, % Refrigerator 7, % 19, % Air Conditioner 14, % 33, % Source: NBS The development speed of Chinese real estate market kept in downtrend in March. The statistics from NBS show that China invested totally RMB 1,092.7 bln in real estate sector in Jan.-Mar., up by 23.5% y-o-y; the growth rate was lower by 4.3 points against Jan.-Feb.. Among which, the investment in resident buildings was RMB bln, up by 19%, accounting for 68.1% of the total investment. In the first 3 months, the Chinese sold building area was mln square meters, down by 13.6% y-o-y. In the 70 big and middle cities, the newly built commercial houses and apartment price index declined in March both on monthly and yearly basis. The Chinese govt. still holds strict and tight policies for real estate industry. Some of the real estate enterprises cash flow would be tightened; while the house price would be hard to show big increase in short term. Accordingly, the development speed of the sector might slow down further in the next several months. Generally, the market participators especially zinc users and traders widely hold pessimistic opinions for the zinc consumption in the first half of this year on the macro control over Chinese real estate sector and the shrunk foreign demands. Foreign trade of zinc conc. and refined zinc China imported 534 kt of zinc conc. (physical weight) in Jan.-Mar., down by 26.7% y-o-y, according to the statistics released by China Customs. The import in Mar. was 153 kt, a bit lower than the previous month. Meanwhile, China imported 131 kt of refined zinc in the first 3 months, up by 50.25% y-o-y; the import in March was 45 kt, up by 20.2%. The zinc conc. import showed a 32% decline to 153 kt in March, which is in the lowest level after Nov., By country, most of the zinc conc. import decrease was happened in Peru. Besides, the domestic demands for zinc conc. slipped because some zinc smelters suspended and maintained facilities, while some others were affected by environmental protecting regulation. Moreover, the Chinese zinc mine production was activity that provided relative rich material supply. Those factors jointly controlled the demand for zinc conc. China imported 45 kt of refined zinc in Mar., up by 20.2% y-o-y. In the first 3 months, the refined zinc 9

10 import was 131 kt, up by 50.2% y-o-y. There are several key reasons for the big growth of the import: domestic zinc smelters suffered serious lost in operation, some of which turned to import refined zinc partially replacing production for the purpose of reducing lost; the demand for financing through importing zinc is higher than the same time of last year; the tariff of refined zinc was adjusted to 1% from 3% after July, 2011 that reduced the cost of traders and made them more interested in importing zinc. 60,000 Tonne 50,000 40,000 30,000 20,000 10,000 0 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Import Export China s refined zinc import and export Chinese zinc conc. import by country Unit: Tonne (physical weight) Country Mar. Chn y-o-y (%) Jan.-Mar. Chn y-o-y (%) Australia 47, , Turkey 24, , Peru 17, , Mongolia 12, , Russia 11, , Burma 9, , Kazakstan 6, , Canada 5,466-23,648 - Spain 4,553-7,787 - Ireland 2,830-9, Morocco 2, , Nigeria 1, , Montenegro 1,390-1,390 - DPRK 1, , Mexico 1, , Bolivia , Guatemala 887-1,821 - Serbia

11 Country Mar. Chn y-o-y (%) Jan.-Mar. Chn y-o-y (%) Vietnam Thailand , Iran , Brazil 160-1,097 2, Indonesia Total 153, , Source: China Customs Forecast: The latest employment data and PMI in Euro Zone and the biggest economic body Germany are both not very well, which show bigger risk for economy downtrend. In that case, the Euro would be influenced. Meanwhile, some key economic data in the U.S. are weaker than anticipation. Moreover, the official saying of FED indicates the QE3 would be unlikely to be released unless serious decline of economy is seen. The press supports the dollar index and affects the metal prices. In zinc market itself, the huge inventory makes it less possible for the zinc prices to show big rebound. Meanwhile, the slowed down production growth rate would not stimulate the price effectively. On the contrary, after the zinc price becomes re-stable and in uptrend, the Chinese zinc refineries would recover production. Then, the oversupply would put stress on the price again. However, the rising production cost as well as the weak downstream demands especially in pick season has extruded the refineries profit. In that case, the further decline room of zinc prices is limited. In the coming month, the zinc prices will still fluctuate in short range on the unclear trend of market fundamentals and macro economy. The market has basically understood the fact of European debt crisis and the slowed down of the U.S. economic resumption. The zinc prices may be in uptrend but slowly in May. The LME 3-month zinc price will be in US$ 1,950-2,180/t in May, while the SHFE mainstream zinc contract price will be RMB 15,300-16,300/t. Table 5: Chinese refined zinc market balance (kt) Production Import Consumption Export Balance , , , , , , , , e 5, , Source: Antaike ( e means estimate) 11

12 Lead Lead price rebounds in April The LME 3-month lead price was mainly in uptrend in April. The 3-month lead opened at US$ 2,037/t at the beginning of April. The price fluctuated in the first half of April and climbed continuously in the second half of the month. It touched a monthly high of US$ 2,165/t and closed at US$ 2,148/t at the end of the month, up by 5.2% compared with a month ago. The average price of LME 3-month lead was US$ 2,078/t in April, almost unchanged with that in March, but down by 22.2% y-o-y. The LME cash-month lead price averaged at US$ 2,074/t in Apr., up by 0.8% m-o-m and down by 23.7% y-o-y. Tonne 450, , , , , , , ,000 LME lead inventory and 3-month price US$/t 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 LME lead inventory LME 3-month lead price The SHFE lead contracts were mainly following LME in April. The mainstream lead price opened at RMB 15,530/t at the beginning of the month, which was in the lower level during the month. Then, it fluctuated and increased between RMB 15,530-15,900/t. It closed at RMB 15,820/t at the end of the month. up by 1.6% compared with the end of the previous month. The monthly average price of SHFE mainstream lead contract was RMB 15,671/t in Apr., down by 0.9% m-o-m and 14.7% y-o-y. The domestic spot lead price averaged at RMB 15,590/t in Apr., down by 1.0% m-o-m and 9.9% y-o-y. Yuan/t SHFE Lead mainstream future contract

13 Yuan/t 18,500 18,000 17,500 17,000 16,500 16,000 15,500 15,000 14,500 14,000 Refined lead prices on LME and Chinese spot market US$/t 3,000 2,800 2,600 2,400 2,200 2,000 1,800 shanghai Huatong lead price Lead price on LME and SHFE LME 3-month (US$/t) LME cash-month (US$/t) LME cash-month lead price SHFE 3-month (RMB/t) Domestic lead spot (RMB/t) ,731 1,721-13, ,171 2,147-16, ,392 2,404-16,346 Apr-11 2,683 2,740 18,435 17,306 May-11 2,403 2,420 16,842 16,142 Jun-11 2,533 2,525 16,892 16,169 Jul-11 2,696 2,681 17,463 16,867 Aug-11 2,395 2,393 16,739 16,341 Sept-11 2,269 2,288 15,788 15,640 Oct-11 1,968 1,960 14,841 14,878 Nov-11 2,017 1,994 15,277 15,322 Dec-11 2,044 2,025 15,382 15,369 Jan-12 2,125 2,100 15,589 15,482 Feb-12 2,152 2,121 15,998 15,830 Mar-12 2,076 2,057 15,815 15,743 Apr.-12 2,078 2,074 15,671 15,590 Sources: LME, SHFE, Antaike Supply Lead conc. production The statistics released by China Nonferrous Metals Industry Association (CNIA) show that China produced accumulative 610 kt of lead in conc. in Jan.-Mar., up by 35% compared with the same period of the previous year. The production in March was 265 kt, up by 35.5% m-o-m and 55% y-o-y. Except Guangdong Province, all key lead mine producing regions saw production growth in March. The lead miners production was affected by blood lead incident, which led to a big decline of production in the province. 13

14 Antaike finds in survey that most lead miners have no expending plan, while the additional mining projects are supposed not enough to support such a high speed production increase. Among key producing regions, Sichuan and Hunan represented rapid growth of lead mine production, while Inner Mongolia kept low speed growth. According to Antaike s primary statistics, Chinese lead in conc. output was approximately 490 kt in Jan.-Mar., up by around 27% on a yearly basis. Tonne Chinese lead-in-conc. output 280, , , , , , , , , ,000 80,000 60,000 40,000 20,000 0 Jan. 10 Mar. 10 May. 10 Jul. 10 Sept. 10 Nov. 10 Jan. 11 Mar. 11 May. 11 Jul. 11 Sept. 11 Nov. 11 Jan. 12 Mar. 12 The domestic mainstream TC of lead conc. was about RMB 1,700/t in April, lower by RMB 200 against the previous month. Meanwhile, the TC of imported lead conc. was US$ 80/t in April, much less than US$ 110/t a month ago. Refined lead production According to the statistics released by CNIA, China produced a total of 896 kt of refined lead in Jan.-Mar., 2012, up by 0.8% on a yearly basis. The annual increase rate in the early months this year was much lower than that of last year. The govt. enhances the force in environmental protecting regulation over lead related sectors. Those enterprises failed to meet the requirement are ordered to be in suspension for adjustment. Meanwhile, the lead price is in a relative low level. In that case, the lead smelters are not active in production, and the Chinese refined lead output was basically stable in Jan.-Mar. Among key producing regions, Henan, Hunan, Yunnan and Hubei produced 342 kt, 221 kt, 84 kt and 83 kt, respectively, up by 8.4%, 13.6%, 8.3% and 49.7% compared with the same period of the previous year. The secondary lead production was still weak in the first quarter. The key production regions - Jiangsu and Anhui yielded 39 kt and 17 kt of refined lead in Jan.-Mar., respectively, down by 13.9% and 12.7% on a yearly basis. The suppliers of used acid battery are reluctant to sell the material in relative low level that leads to a decline of secondary lead production. Moreover, some secondary lead operations are still in suspension affected by industrial regulation for protecting environment. 14

15 Consumption Statistics from National Bureau of Statistics (NBS) show that Chinese lead acid battery output was mln kvah in Jan.-Mar., 2012, up by 14.4% y-o-y. In Mar., the national total lead acid battery output was mln kvah, up by 23.4% y-o-y. The real consumption of lead was 1.08 Mt in the first quarter, up by 17.8% against the same term of the previous year, according to Antaike s statistics thousand kvah Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Chinese lead acid battery production China s automobile production and sales resume in March The Chinese automobile production and sales resumed further in March this year, according to the China Association of Automobile Manufacturers (CAAM). The production and sales still saw a decrease in Q1 against the same period of last year, but the decrease range shrank compared with that in the early months. China produced 1.88 mln units of automobiles in March, up by 16.9% compared with the previous 15

16 month and up by 3.4% against the same month last year. Meanwhile, the sales quantity was 1.84 mln units, up by 17.3% against the previous month and up by 1.0% against the same period last year. In the first 3 months, the Chinese automobile production and sales was 4.78 mln units and 4.79 mln units respectively, down by 1.8% and 3.4% on a yearly basis, lower than that in the first 2 months. Chinese automobile production and sales in March 2012, thousand units Production Mar. MoM chn (%) YoY chn (%) Jan.-Mar. YoY chn (%) Total 1, , Passengers car 1, , Commercial vehicle Sales volume , Total 1, , Passengers car 1, , Commercial vehicles Source: CAAM , Chinese motorcycle production & sales in March The Chinese motorcycle production and sales kept rebounding in March, but still lower than that same month of last year, according to the statistics released by China Association of Automobile Manufacture (CAAM). In the first quarter, both the production and sales of motorcycles showed nearly 9% decline against Q China produced 2.09 mln sets and sold 2.07 mln sets of motorcycles in March, respectively up by 15.37% and 12.24% compared with the previous month and down by 10.24% and 9.85% against the same month last year. In the first 3 months, the domestic motorcycle production and sales was 5.54 mln sets and 5.63 mln sets, down by 8.81% and 8.82% against the same period of the previous year. Chinese motorcycle output & sales volume in March 2012, thousand units Mar. Chn mom (%) Chn yoy (%) Jan.-Mar. Chn yoy (%) Output Total 2, , Two wheels 1, , Three wheels Sales volume Total 2, , Two wheels 1, , Three wheels Source: CAAM In communication sector, China produced accumulative mln channels of mobile communication station equipment in Jan.-Mar. this year, up by 99.1% y-o-y; higher by more than 60 points against the first 2 months, according to statistics released by NBS. The output was mln channels in March, up by 78.4% y-o-y. The Ministry of Industry and Information Technology held a conference on March 20 th, 16

17 on which, the Chinese Broadband networks Promoting and Accelerating Project was formally started up. So, it is expected the demands for the communicating equipment will become stronger, which will raise the demand for lead acid batteries. Based on statistics of China Customs, the export of SLI batteries was 1.7 mln units in March, up by 33.7% m-o-m and 25.2% y-o-y. The export of other lead acid batteries was mln units in March, up by 50.2% m-o-m and down by 1.4% y-o-y. Chinese lead acid battery imports and exports in Jan.-Mar Unit: unit Imports Exports Mar. Jan.-Mar. Chn y-o-y (%) Mar. Jan.-Mar. Chn y-o-y (%) SLI 336, , ,642,192 47,574,046 1, Others 402, , ,152,275 20,449, Source: China Customs Foreign trade of refined lead and lead conc. According to customs statistics,china imported t of refined lead in Mar., 2012,down by 61 t compared with the previous month, and changed little against the same month of the previous year. There are not too much opportunities for arbitrage in April, lower than March. So, the import of refined lead will be in uptrend steadily in the following months, while the export data will be still zero. Tonne 2,500 Chinese Chinese refined refined lead lead impot import and and export export 2,000 1,500 1, Jan. 11 Mar. 11 May. 11 Jul. 11 Sept. 11 Nov. 11 Jan. 12 Mar. 12 Import Export China imported 3.8 kt of lead alloys in Mar.,down by 13.4% m-o-m and 10.7% y-o-y; the export was t, up by 271.4% m-o-m and down by 69.1% y-o-y. The lead semis import was 91.7 t in Mar., down by 50% m-o-m and 18.2% y-o-y; the lead semis export was 1.57 kt, down by 11.2% m-o-m and 70.2% y-o-y. China imported 148 kt of lead conc. (physical weight) in Mar., down by 11.7% m-o-m and up by 46.0% y-o-y. The domestic lead mines combined operation rate increased steadily in recent months, while the TC of foreign lead conc. was in downtrend at the main time, which are the key reasons for the decline of lead conc. import. 17

18 Tonne 200, , , , ,000 75,000 50,000 25,000 0 Chinese lead conc. import (physical weight) Jan. 10 Mar. 10 May. 10 Jul. 10 Sept. 10 Nov. 10 Jan. 11 Mar. 11 May. 11 Jul. 11 Sept. 11 Nov. 11 Jan. 12 Mar. 12 Chinese lead import and export Unit: tonne Import Export Mar Chn mom (%) Chn yoy (%) Mar Chn mom (%) Chn yoy (%) Lead conc. (physical weight, kt) Refined lead Lead alloys 3, Lead semis , Source:China Customs Market outlook The global economy would be less possible to bring big good news to lead market. The U.S. economy is struggling for slow resuming. The European economy is facing the trouble of huge debt participations think if there were no bad news, it should be good news. The Chinese economic development is slowing down. In that case, a single good economic data would be hard to bring too much reflect from the market. On the contrary, a disadvantage once comes out will strike the market confidence immediately. If so, the lead price would be affected and may face down further. The lead consumption in Europe and the U.S. would not show big growth in the second quarter, while the supply would be stable. In China, the second quarter is the slack season for lead acid battery replacement, which provides less support for lead consumption growth. Meanwhile, the smelters production willing is not strong, which only kept relative low operation rate. Moreover, the raise of production cost in worker force, power, etc defends the lead price from further decline too. The LME 3-month lead price will be at US$ 1,900-2,100/t; SHFE mainstream lead contract price will be at RMB 15,100-16,000/t; domestic spot lead price will be around RMB 15,500/t in May, Antaike estimates. 18

19 Chinese refined lead market balance, kt e Mar. Jan.-Mar Refined lead production 3,153 3,550 3,923 4, ,603 Consumption 2,903 3,328 3,750 4, ,080 4,405 Net export Balance Sources: CNIA, Antaike Tin Price LME 3-month tin ran between $21,000-23,200/t with shake in April. The average price of cash month tin and 3-month tin in April of 2012 were $22,115/ t and $22,184/ t, down by 3.8% and 3.7% m-o-m, and down by 31.6% and 31.5% y-o-y. The debt problems in Spain and Italy made the market worried about European debt crisis again in April. The yield at Spain and Italy increased in early April. And the market didn t relax until the yield fell. After that, Spanish debt auctions became the focus of market. On April 20, the G20 leading industrial and emerging market economies have agreed to boost the IMF's lending capacity with commitments that would increase the institution's resources by more than 430 billion US dollars, a move that will protect the global economy from the damage of European debt crisis. Chinese economy is also the cause for concern. Although The March PMI climbed to 53.1 percent, 2.1 percentage points higher than February, the March CPI and Q1 GDP were all not expected. And for USA, the economic recovery was not strong as the market expected, there were still some unbalanced factors in the data announced in April. The average tin price on domestic spot market was 165,676yuan/t in April of 2012, down by 3.0% m-o-m, and down by 20.9% y-o-y. The spot tin price continued to decline in most of time in April, and only kept stable for five days with 164,000yuan/t in late April. The transaction was still weak in April. Most of the downstream enterprises continued to purchase tin as per order condition, while the smelters was reluctant to sell out as the high price of raw material. Table Sn-1 Tin prices and inventory ( ) LME US$/tonne Chinese spot market Cash month 3 month Inventory yuan/tonne 2007 Ave. 14,529 14,520 12, , Ave 18,499 18,489 7, , Ave 13,613 13,428 26, , Ave 20,408 20,442 16, , Ave 25,998 25,998 12, ,033 Jul ,398 27,463 20, ,024 Aug ,057 24,135 22, ,174 Sep ,525 22,572 21, ,190 19

20 LME US$/tonne Cash month 3 month Inventory Chinese spot market yuan/tonne Oct ,869 21,900 16, ,563 Nov ,292 21,314 12, ,727 Dec ,387 19,433 12, ,295 Jan ,548 21,601 9, ,700 Feb ,293 24,340 10, ,452 Mar ,985 23,044 13, ,783 Apr ,115 22,184 14, ,676 Chart Sn-1 Tin price on Chinese spot market Production According to the China Nonferrous Metals Industry Association s (CNIA) statistics, Chinese refined tin output in March was 13,626t, up by 15.0% m-o-m, and up by 13.1% y-o-y. Overall, the refined tin output in March was stable. The drought in Yunnan didn't have too much effect on production. But, as the continuous weak demand for tin, the market showed oversupply on refined tin recently, which may blow smelters' enthusiasm of production. Chinese cumulative output of refined tin from January to March in 2012 was 35,629t, up by 0.6% y-o-y. Chinese tin-in-concentrate output in March was 10,013, up by 61.3% m-o-m, and up by 6.3% y-o-y. It was different with refined tin, the supply of tin-in-concentrate was tight recently. In addition, the cadmium pollution in Hechi of Guangxi has been controlled in late March, and tin miners there were allowed to restore the production. Chinese cumulative output of tin-in-concentrate from January to March in 2012 was22,431t, down by 1.8% y-o-y. 20

21 Chart Sn-2 Chinese output of refined tin and tin-in-conc. (Jan, Mar, 2012) Table Sn-2 Chinese output of refined tin and tin-in-conc. (March, 2012) March Refined tin Tin-in-conc.(the amount of metal) Jan-Mar Jan-Mar y-o-y/% March /t /t y-o-y/% Yunnan 7,097 19, ,887 6, Guangxi 1,758 5, ,200 2, Jiangxi 1,234 3, , Hunan 2,731 6, ,854 10, Jiangsu 706 1, / / / Zhejiang / / / Inner Mongolia / / / Fujian / / / Guangdong Anhui / / / / National total 13,626 35, ,013 22, Source:CNIA The output of small electronic products like mobile phone and laptop increased obviously in March. While the growth of household appliance products was more inferior, and most of them showed negative growth. The export, the policy of "trade in old home appliance for a new one", "home appliances going to the countryside", and the of real estate market, were all the reasons for weak growth of the traditional household appliances industry. 21

22 Table Sn-3 Production of Electronic Products in 2012 March Jan-Mar Chn yoy % Household washing machine mln units Household refrigerator mln units Household Ice-box mln units Air conditioner mln units SPC exchange mln paths Fax machine thousand pieces Base station equipment for mobile communication mln signal paths Mobil phone (GSM CDMA) mln units Computer mln units Microcomputer mln units Integrate circuit billion units Colorful TV mln units Source: NBS Import and export Chinese refined tin import was 2,571 in March, down by 30.9% m-o-m, but up by 185.4% y-o-y, according to the China Customs statistics. The price gap at home and abroad is smaller and smaller since the year of 2012, and the domestic tin price was a little cheaper than that aboard in March. Although it was not obvious, the import enthusiasm of domestic businesses could be also hit. And the weak demand was also one of the reasons for Chinese refined tin import decreasing. In addition, because of the sailing date and the Chinese New Year holiday, the refined tin import had increased a lot in February. So the import in March was less than that in February. But it was still at a high record. The cumulative refined tin import from January to March in 2012 was 7,906t, up by 310.8% y-o-y. The imports mainly came from Indonesia (1,203t, 46.8%), Malaysia (1,081t, 42.0%) and Bolivia (197t, 7.7%). In addition, Chinese refined tin export was 622t in March, up by 122.1% y-o-y. Chinese tin-in-concentrate import was 2,978t (physical quantity) in March, down by 8.7% m-o-m, but up by 189.1% y-o-y, according to the China Customs statistics. The tin-in-concentrate import was mainly from Burma (1,775t, 59.6%) and Bolivia (841t, 28.2%) in March. The cumulative tin-in-concentrate import from January to March in 2012 was 7,522t, down by 16.5% y-o-y. 22

23 Chart Sn-3 Chinese import and export of refined tin Chart Sn-4 Ratio of Chinese tin price against LME cash-month tin price Outlook Now the debt auctions in euro zone countries are going well, but in fact the yield is still in a high level. The market is still worried about the debt default in some euro zone countries. So the European debt problem will be still the focus in May. HSBC China manufacturing PMI initial value in May announced 23

24 at the end of April was below 50%, which showed the manufacturing didn't get better obviously. But it is expected that the PMI terminal value in May will be better. For USA, as the economic growth was slow down, the monetary policy will be relaxed further. The QE3 may be announced in June. In general, the global economy is still unstable, so we will continue to pay close attention to the macro economy. It is expected that the LME tin price will continue to run with shake in May. The LME 3-month tin in May of 2012 is expected to be running between $20,500-23,500/t, and the average price is $22,000/t. The LME tin price rebounded at the end of April, but the tin price on domestic spot market was stable as it showed a lack of power for rising because of the weak demand. Now it is staying at 163,500yuan/t. And most of the smelters reluctant to sell as the raw material price is high. So it is expected tin price will be stable in short time, but with the changeable economic environment, it could get a risk for declining further. We forecast the tin price on domestic spot market is 160, ,500yuan/t in May of 2012, with an average price of 163,000/t. Table Sn-4 Chinese Tin Market Balance unit:kt Production Import Export Crude Tin Other Export Apparent Consumption Actual Consumption Balance Source: CNIA, the Customs and Antaike News in Brief Policies and Industrial News Ningxia based lead smelters and battery manufacturers forced to be in clean production 9 Pb-Zn-Au exploring licenses released in Chifeng of Inner Mongolia Xi'an to regulate illegal galvanizing operations 24 The environmental protecting department of Ningxia Autonomous Region determined recently to check the pollution treating performance in lead smelters, lead acid battery producers, and several other heavy metals related sectors, according to local media. Then, the department will promote clean production in those operations in force. Those failed to fulfill the clean production will be showed in public, and will be punished. There were 9 prospecting projects recently successfully got the licenses of exploration in Aohan Banner, Chifeng City, Inner Mongolia, sources from the Land and Resources Bureau of Aohan said. Those projects include 5 exploring licenses for lead and zinc poly-metals deposits and 4 gold deposits. The total exploration area covers square kilometers. The Environmental Protection Bureau of Xi'an City announced recently that it started up a 3-month heavy metal pollution examination movement since April, according to Xi'an Daily. During the movement, a batch of small size and illegal galvanizing enterprises will be eliminated.

25 Hebei to set daily supervising mechanism over dangerous waste treating processes Miners & Smelters Chihong fails to fulfill production plan for 2011 A 60ktpy lead smelting project commissioned in Ningyuan of Hunan Yuyuan Company starts a tech-upgrading project over its 60ktpy lead smelter Lead, Zinc & Tin Monthly, May 2012 No. 185 Hebei govt. plans to take all-time supervision over the provincial heavy metal related industries this year, sources close to the situation said. The purpose is to prevent heavy metal pollution, and to punish the illegal emission of polluting materials. The targets include nonferrous metals miners and smelters, galvanizers, battery fabricators and some nonmetal sectors. The daily supervising system will be formed before May 31th, which will cover thousands key heavy metal related enterprises. Last year, the provincial govt. checked nearly 60 thousand companies, and closed 431 and ordered 200s to be in suspension. The examination focused on the lead acid batteries at that time, and 16 lead acid battery operations were closed, while 93 operations were suspended. Only 12 operations were in normal production. Yunnan Chihong Zinc & Germanium Co., Ltd. (Chihong, Shanghai, ) released its financial report for 2011 recently. According to the report, Chihong produced 253.3kt of lead and zinc in 2011, including 112.1kt of refined zinc, 44kt of zinc alloys and 97.2kt of refined lead. Chihong planned to produce 300kt of lead and zinc in 2011 based on its production plan mentioned in the previous annual report a year ago. So, the company completed only 84.43% of the plan last year. It announced that the key reason of the failure in production was the close of its 55ktpy zinc refinery in Huize county of Yunnan Province. To meet the requirement of the nation's backward capacity eliminating and heavy metals pollution preventing plan, Chihong closed Huize Zhehai zinc refinery after Jun. 30, Meanwhile, the construction was not finished in 160ktpy lead and zinc smelting project in Huize and the 200ktpy lead and zinc project in Hulunber of Inner Mongolia. The two projects are still under construction at present. Yongzhou Fujia Nonferrous Metals Co., Ltd. held a ceremony for the commission of its lead smelting project in Ningyuan County of Hunan Province on Apr. 7, The project is designed to have capacity of 60ktpy lead. The smelter adopts rich oxygen bottom blowing smelting technology. It is said that the operation could produce at most 80kt of lead and lead series products, 80 kt of sulfuric acid, 300kg of gold, 180t of silver, 300t of bismuth, 1,100t of copper matte and 9kt of zinc hypoxide each year. Golmud Yuyuan Nonferrous Metals Co., Ltd. started up a technology upgrading project over its 60ktpy lead smelting system on April, 6th in Golmud City of Qinghai Province. The company expresses the new technology will adopt oxygen bottom blowing furnace, oxygen side blowing reduction furnace and fuming furnace. When the project is completed, the new smelting system will save 54% of old system's comprehensive energy consumption. The new system will also save 14,450t of coal equivalent, and reduce 247.5t of SO2 discharge each year. The total budget of the project is 25

26 Hechi Nanfang Co., Ltd. fully resumes production Western Mining's profit down by 91% in Q1, Lead, Zinc & Tin Monthly, May 2012 No. 185 RMB 315 mln. The construction term would be one year. So far, the preparation has been finished basically. Hechi Nanfang Co., Ltd. announces currently that it has fully resumed production. The company's lead and zinc operations in Hechi City were ordered to be in suspension in the turn of Jan.-Feb. this year affected by the pollution incident nearby. The pollution incident broke out in Longjiang River of Hechi City. Affected by the accident, the lead and antimony smelter and zinc smelter of Hechi Nanfang Co., Ltd. were forced to suspend production in Jan. 18 and Feb. 5, respectively. In the following two months, the company maintained and completed the pollution treating facilities. Meanwhile, the related departments established a special working group to examine the regulating result of the local heavy metals operations on Mar. 7-8 including that of the company's. During the examination, the environmental protecting performance of the company was appreciated. Then, the facilities of Hechi Nanfang Co., Ltd. restarted gradually after Mar. 15. After Apr. 1, all the operations of the company returned to normal production. Hechi Nanfang Co., Ltd. is one of Chinese key refined zinc producers in China with capacity of 200ktpy zinc, 50ktpy lead and 30ktpy antimony. Western Mining Co., Ltd. (Shanghai, ) published its financial report for Q1, 2012 on April 18th. Based on the report, Western Mining created RMB bln of sales revenue in Jan.-Mar., 2012, up by 14.16% y-o-y. However, the net profit declined by 91.13% in the same period to RMB RMB mln. The company indicated three key reasons for the decline of profit in the report: Firstly, the prices of the company's key products decreased a lot in the first 3 months against the same period of the previous year. Western Mining calculated the refined copper price decreased by 18% in Q1 this year compared with that a year ago, similar, refined zinc price down by 17%, refined lead down by 10%, aluminum down by 4%, copper conc. down by 18%, zinc conc. down by 16%, lead conc. down by 11%. The company predicts those materials' prices would be hard to show a rapid rebound in Q2 unless strong supporting factors appear. Secondly, the company's key mineral products output should be lower in the first 3 months this year against the same term of last year because the production plan of those products is lower for 2012 than that in 2011, respectively. Thirdly, the TC of key refined products decreased a lot in Q1 this year on a yearly basis affected by the downtrend metal prices. In that case, the profit in smelting process is extruded out more or less. The situation would not change too much in the second quarter, the company predicted.