COLUMN-Appearance and elusive reality in China's zinc mining sector: Andy Home

(Repeats Sept 8 column. The opinions expressed here are those of the author, a columnist for Reuters.)

By Andy Home

LONDON, Sept 8 (Reuters) - What could bring the zinc bull party to an untimely end?

Well, obviously, there is the potential for Glencore (Frankfurt: 8GC.F - news) to reactivate the 500,000 tonnes of mine capacity it has idled since late last year.

Given zinc's stellar outperformance so far this year is predicated on a tightening raw materials market and the promise that this will feed through to metals shortage, the timing of any restarts will be a critical part of the equation.

Glencore, not surprisingly, is keeping its cards close to its chest.

The other nagging concern for the many bulls out there is that Chinese mines will respond to higher prices by lifting production and filling any supply gap.

They appear to have already started doing so, figures from the International Lead and Zinc Study Group (ILZSG) suggesting national output rose by 6 percent in the first half of 2016 after falling by 3 percent last year.

But emphasis on the word "appear" in that sentence because when it comes to Chinese mine production, appearances can be very deceptive indeed.

NOT EVERYTHING THAT COUNTS CAN BE COUNTED

How, for example, to square apparently rising Chinese mine production with falling treatment terms, both within China and for imported mine concentrates?

Treatment charges are what miners pay smelters for transforming their raw material into refined metal. They should therefore be a good gauge of availability and if they're falling, the implication is that smelters are having to compete more aggressively for inputs.

The answer to this conundrum, according to Leon Westgate, analyst at ICBC Standard Bank, is down to how ILZSG calculates its Chinese mine figures. ("Lies, damned lies and Chinese zinc mine data", Sept. 7, 2016).

Rather than counting actual mine production in China, ILZSG has since 2013 been calculating "apparent" mine production, a methodology based on the difference between Chinese refined zinc production and the amount of imported concentrates.

Don't blame the ILZSG for this. Even (Taiwan OTC: 6436.TWO - news) the government-affiliated Chinese statistical agencies struggle to count the country's zinc mine production.

Quite simply, the sector is full of small-scale, privately-owned and operated mines which do not report their production to anyone.

Collectively they produce a lot of zinc. That much we know because it is generally accepted China accounts for around a third of global production. But pinpointing with any degree of accuracy how much exactly is extremely tricky, if not downright impossible.

APPARENT VS REAL

ILZSG is not alone, by the way, in resorting to "apparent" calculations of Chinese metals data.

Its sister organisation the International Copper Study Group (ICSG) has for some time used the same methodology to gauge Chinese copper demand.

And while the statistical technique has the benefit of relying on harder numbers, such as refined production rates, not perfect either but a lot better, and import figures, the best of them all, there is one obvious problem.

"Apparent" calculations of any sort can't pick up changes in stock movements.

The ICSG's monthly bulletins now contain an estimate of changes in bonded copper stocks from a number of independent consultants.

But trying to assess changes in Chinese zinc concentrates stocks is even harder than trying to work out what Chinese mines are up to.

It's quite possible that Chinese mine production hasn't been rising at all but rather that stocks have been drawn down to keep China's smelters ticking over.

That anyway is Westgate's contention and although he is a self-declared zinc bull, such a bullish inference is perfectly plausible, given the way "apparent" calculations can miss big changes in inventory.

The reality is that there are no real Chinese production numbers out there, just estimates, some of them purely statistical calculations, some of them incorporating an element of local "human" intelligence.

NOTHING IS TRUE?

Which brings us back to the core question of whether Chinese zinc mining is rising, falling or broadly flat.

There are, as Westgate points out, some very differing views out there.

Looking at those for the first half of this year, he notes that ILZSG's zinc mine estimate is 196,000 tonnes higher than that of Chinese state research house Antaike, 465,000 tonnes higher than that of the World Bureau of Metal Statistics and 711,000 tonnes higher than that of independent research house CRU.

Given global mined zinc production is around 13.5 million tonnes, these differences go way beyond being "just a near miss or rounding error".

The fact is that bulls and bears in the zinc market can pick and choose which data series they want to use to argue their case.

If there is a "truth" in this hall of statistical mirrors, it can only be the price.

In the context of zinc mine concentrates, that means spot treatment charges.

These, everyone is agreed, have been falling not rising.

(Editing by)