China's fragmented lead and zinc industries  are  expected  to undergo consolidation within the next five years as  small-sized  miners and smelters are increasingly being forced out of business  due  to  plummeting product prices, an industry analyst said.

"Booming lead and zinc prices in the last few years led to an investment frenzy in  the  metal  mining  and  smelting  sectors.  However, China's ongoing  industrial  structure  optimization,  coupled  with the current global economic  downturn, will likely induce a cool down in investments and accelerate  consolidation,"  Feng  Juncong,  a  senior  analyst with Beijing Antaike Information, said.

"In particular,  since  the  beginning  of October, lead and zinc prices have tumbled by more than 30 percent, causing almost all zinc miners and smelters  to  rack  up  losses,  while  lead  smelters  are earning just fractional  profits.  China's  lead  and  zinc  industries  will  likely consolidate  within the next five years under the current climate," Feng said.

In 2007,  there  were  only  six  lead  smelters that each had an annual production  capacity  of  over 80,000 tons, accounting for 33 percent of China's  total output, while there were nine zinc smelters that each had an annual production capacity of over 100,000 tons, accounting for about48.7 percent of combined domestic output?

Feng said  that  ideally,  large-scale lead and zinc miners and smelters should account  for  50  percent to 60 percent of the country's lead and zinc output.

Feng also  said that even though China is among the richest in the world in lead  and  zinc  resources, ore supplies are relatively tight because mining facility expansion is lagging behind smelting capacity expansion.

Moreover,  China's  zinc  concentrate output is likely to decline by 4.6percent  year-on-year to 3.09 million tons in 2008, due to interruptions by snowstorms  in  February and the May 12 Sichuan earthquake, according to Feng.

Feng forecast  that  China's refined zinc consumption will increase by 4 percent year-on-year in 2008, much lower than the average growth of 14.5 percent  in  the  past eight years. Also, production output from China's automobile  manufacturers,  which  are  major refined zinc consumers, is expected to grow at a slower pace of 15 percent year-on-year.

The three-month  lead  contract price on the London Metal Exchange (LME) fell from its peak of $38,800 per ton in October 2007 to $12,700 per ton on Nov.  12,  while the three-month zinc contract nosedived from $45,300 per ton in November 2006 to the current price of $11,000 per ton.