EDITOR: | November 5th, 2013 | 4 Comments

Zinc: Suddenly it is the centre of attention as deficits loom and heady prices predicted

| November 05, 2013 | 4 Comments
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SONY DSCSuddenly, everyone is talking about zinc. It has long been the poor relation in the base metals complex, not so flashy as copper or nickel on its day, nor having the niche appeal of tin.

But the reason the galvanising metal has suddenly come into focus is that, after years of surpluses, deficits are now looming. It is all because mines are closing, and many are big mines. Over the next four years, some 11% of the world’s production is going to be closed down. Two Canadian mines, Brunswick (200,000 tonnes a year) and Perseverance (120,000 tonnes), have closed this year and the Chinese-controlled Century in Australia (480,000 tonnes a year) has three more years left. Century’s owner, MMG, which is controlled by China Minmetals, has just flagged the news that its A$1.5 billion Dugald River development also in Australia will not meet its planned 2015 opening date. The Lisheen mine in Ireland, when it closes next year, will take out another 167,000 tonnes a year.

Anglo American of South Africa will close its Skorpion mine (162,000 tonnes a year) and Rathdowney Resources’ Pomorzany-Olkusz mine in Poland (65,000 tonnes a year is also running out of metal. Also to go are Mae Sod in Thailand (45,000 tonnes a year) and others which total between then another 447,000 tonnes a year. A Reuters report this week notes that many of the new mines being developed are much smaller than the ones working toward exhaustion.

The International Lead and Zinc Study Group forecasts the world having too much zinc through at least 2014, but sees the global oversupply shrinking to 120,000 tonnes this year.

However, BNP Paribas analyst Stephen Briggs believes zinc is already in short supply and forecasts a 20,000 tonne deficit this year and a 15,000 tonne deficit next year. He points out that inventories at the Shanghai Futures Exchange have fallen while premiums have risen worldwide. The premiums are paid by end-users to ensure delivery of physical metal, a trend which shows zinc demand is increasing.

Zinc has shown how fast it can appreciate when in deficit, rising from $880/tonne in 2003 to $4,619/tonne on November 26, 2006. But then the metal’s price collapsed far ahead of the other base metals, entering 2007 on the slide. The GFC hit zinc badly; by November 7, 2008, it was at $1,080/tonne. Zinc mines in Portugal, Australia and elsewhere shut up shop.

On Monday at the London Metal Exchange, zinc breached the 200-day moving average by dropping to $1,924/tonne. But the London-based commodity analyst Wood Mackenzie has predicted the metal would average more than $3,500 a tonne from 2016. Then Barron’s began talking zinc at $2,400/tonne by 2015. It seems market sentiment is switching quite rapidly.

An Australian company, Ironbark Zinc (ASX:IBG), in a recent presentation showed how zinc prices have lagged: they’re up 143% over 10 years but overshadowed by iron ore (up 896%), lead (366%) and copper (322%). China is seen as the big growth market for the galvanising metal. At present Chinese steelmakers galvanise just 4 per cent of their output compared with an average of 18 per cent in the West.

Zinc is the fourth most consumed metal in the world, yet IBG points out the mid-tiers are not exploring for it; there have been limited discoveries over the past decade and the next-generation mines are located mostly in high-risk countries.

According to Geoscience Australia, that country has the world’s largest economic resources of both zinc and lead, accounting for more than a quarter of world zinc resources and one-third of known lead. Australia’s exports of zinc, lead and silver total more than A$5 billion a year (although, unlike with gold or iron ore and coal, you never hear much about it). Australia produces about 12% of world zinc supplies.

And for those unfamiliar with the metal, the International Zinc Association on its website has this primer:

“Eighty per cent of zinc mines are underground, 8% are of the open pit type and the remainder are a combination of both. However, in terms of production volume, open pit mines account for as much as 15%, underground mines produce 64% and 21% of mine production comes from the combined underground and open pit mining.

“Rarely is the ore, as mined, rich enough to be used directly by smelters; it needs to be concentrated. Zinc ores contain 5-15% zinc. To concentrate the ore it is first crushed and then ground to enable optimal separation from the other minerals. Typically, a zinc concentrate contains about 55% of zinc with some copper, lead and iron. Zinc concentration is usually done at the mine site to keep transport costs to smelters as low as possible.”


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Comments

  • vacuum

    Believe it was early pages in the book “Beyond Greed” (Fay, 1983), and not some other title on the subject, where it is written that the Hunt Brothers first became keen on silver because of another man of the time lecturing on the base metals market fundamentals. The Hunt’s inclination to accumulate silver began not with market fundamentals of silver per se, but those of base metals. This point is missed by bloggers and buggs of recent twelve years.

    There are very few silver mines–most virgin silver coming as bi-product of other metal mining (e.g. copper and zinc). Thus, this article should give silverbuggs reason to zinc long and hard!

    November 5, 2013 - 6:00 AM

  • J. Best

    Very funny comment vacuum! I wondered if Robin had any recommendations on companies he has looked at that would be worth researching further?

    November 5, 2013 - 1:27 PM

    • vacuum

      TV.to is polymetalic and so is SVBL. Their charts are situated differently–although, the one is further along towards production than the other. Please DYODD (due dilligence); caveat & etc.

      About three months or so ago, heard an analyst say that polymetalism is best, and Ihe liked Zn & Sb to go along with any precious metals.

      anyway, I certainly like the way Robin thinks. He has a knack for thinking outside the box and considering possibilities before they become too obvious.

      November 5, 2013 - 2:27 PM

  • Stephan B. Feibish

    Canadian Zinc.
    Zinc with a silver kicker.
    (I own an amount almost not worth talking about.)

    November 8, 2013 - 3:25 AM

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