Informative article on Australian Commodities website - Intec gets a mention
zinc
rohan kendall :
rkendall@abare.gov.au
World zinc prices continued their dramatic increase during the December quarter 2006. In early November, spot zinc prices were around US$4500 a tonne (US204c/lb), the highest ever in nominal terms and almost three and a half times the 2005 average price of US$1380 a tonne (US63c/lb). For 2006 as a whole, zinc prices are estimated to have averaged nearly US$3300 a tonne (US149c/lb), 140 per cent higher than in 2005.
The rise in prices during 2006 reflects continued strong demand growth, particularly from China, coupled with relatively low supplies of zinc concentrates. This has led to a sharp decline in zinc stockpiles, which are estimated to total fourteen days of consumption at the end of 2006, only half the already low stocks at the end of 2005.
In 2007, zinc prices are forecast to rise by almost 30 per cent to average around US$4200 a tonne (US192c/lb). Low investment in exploration and mine development in the late 1990s and early 2000s (a time when prices were low) has limited the ability of mining companies to expand supply quickly in the current climate of strong demand and high prices. Consequently, zinc consumption is forecast to exceed production again in 2007, leading to a further drawdown in stocks. Specifically, zinc stocks are forecast to decline by 30 per cent to a critically low ten days of consumption by the end of 2007.
world consumption rising steadily
World zinc consumption is estimated to have risen by 3 per cent to almost 11 million tonnes in 2006 and is forecast to rise by nearly 2 per cent in 2007 to 11.2 million tonnes. While demand is expected to remain robust, particularly in China and India, this is expected to be partially offset by weaker demand in western countries. Around 50 per cent of zinc consumed is in the production of galvanised steel, making zinc consumption highly dependent on developments in the galvanised steel industry.
galvanised steel production in Asia driving zinc consumption
Demand in Asia, which accounts for 53 per cent of the global zinc market, continued to grow during 2006, with consumption increasing by 5 per cent year on year to September. China and India accounted for the majority of this growth, with zinc consumption increasing by 7 per cent and 8 per cent respectively. This growth is being driven by the rapidly expanding galvanised steel industries in China and India which, in turn, reflects strong growth in construction, motor vehicle and household appliance manufacturing.
Industries, such as motor vehicle manufacturing, which use large amounts of galvanised steel, are increasingly being relocated away from north America and Europe to Asia. This shift is occurring as manufacturers seek to take advantage of lower production costs and has led to a significant increase in the production and consumption of galvanised steel in Asia.
As a result of such developments, China surpassed the United States in 2000 to become the world’s largest zinc consumer. As incomes continue to rise in developing Asian economies, sales of motor vehicles and household appliances are expected to rise strongly, providing further support for the consumption of galvanised steel and hence zinc in the region.
but consumption growth slowing in the United States
On the downside, US economic growth is assumed to slow in 2007, with the housing sector to be significantly affected. Specifically, US housing permits dropped by 11 per cent year on year during the first nine months of 2006. As galvanised steel is used extensively for roofing in the United States, a decline in housing construction is expected to flow through to lower consumption of galvanised steel and zinc. A broad based economic slowdown in the United States may also affect consumer spending on zinc intensive products such as motor vehicles and household appliances.
world production rising but affected by disruptions
Global refined zinc production is estimated to have risen by 3 per cent to 10.5 million tonnes in 2006 and is forecast to rise by nearly 5 per cent in 2007 to 11 million tonnes. Growth in world zinc metal production during 2006 was restricted by the low availability of zinc concentrates. This largely reflected the low prices that prevailed in the late 1990s and 2000s, which resulted in the closure of some marginal mining operations, and discouraged new exploration and the development of new mines.
A number of disruptions to mine production also contributed to relatively low availability of zinc concentrates. Specifically, there was an eleven day strike at Kumba Resources’ Rosh Pinah zinc mine (70 000 tonnes a year) in Namibia during November. It is estimated that up to 5000 tonnes of zinc production was lost because of this strike (although some of this may have been made up during the remainder of 2006). Mining unions in Peru have also raised the prospect of a strike to oppose government plans to limit profit sharing. Peru is the world’s third largest producer of mined zinc, accounting for 12 per cent of global mine production. An extended strike in Peru would therefore cause a significant disruption to zinc production and lead to a further rise in zinc prices.
zinc outlook
2005 2006 f 2007 f %
World change
Production kt 10 229 10 540 11 036 4.7
Consumption kt 10 628 10 960 11 150 1.7
Closing stocks kt 808 418 304 – 27.3
– weeks consumption 4.0 2.0 1.4 – 30.0
Price US$/t 1 382 3 285 4 238 29.0
USc/lb 62.7 149.0 192.2 29.0
2004 2005 2006
-05 -06 s -07 f
Australia
Mine output kt 1 352 1 382 1 468 6.2
Refined output kt 464 446 486 9.0
Exports
– ores and conc. kt 1 953 1 822 1 972 8.2
– refined kt 397 388 411 5.9
– total value A$m 1 466 2 540 4 102 61.5
click to download the excel data
new mines and restarts adding to production in 2007
In 2007, world zinc mine supplies are expected to increase as a number of new mines come on line and some marginal mines are restarted. Specifically, Kazzinc recently commissioned the new Shaimerden zinc mine (60 000 tonnes a year) in Kazakhstan and Apex Silver Mines are expecting to commission the new San Cristobal zinc mine (182 500 tonnes a year) in Bolivia by mid-2007.
Hudbay Minerals restarted the Balmat zinc mine in New York during 2006, which is expected to produce 60 000 tonnes of zinc concentrate in 2007. In addition, Teck Cominco is planning to restart the Lennard Shelf mine (70 000 tonnes a year) in Western Australia in early 2007 and Glencore is considering reopening three zinc mines in Tennessee that were closed in 2001, with a combined annual capacity of around 60 000 tonnes a year. Concentrates from the Tennessee zinc mines may be purchased by ZincOx and refined at the Big River zinc refinery in Illinois, which was closed in February 2006 because the cost of importing concentrates made continued operation of the refinery unprofitable.
Higher mine production should assist in easing the low supply of zinc concentrates and enable refineries to operate closer to capacity. However, this increase in production in 2007 is not expected to be sufficient to bring the market back into balance as strong demand in Asia is forecast to result in consumption exceeding production by around 110 000 tonnes in 2007.
higher Australian mine and metal output
Australian zinc mine output rose by 2 per cent to 1.38 million tonnes in 2005-06. This increase was drawn mainly from the ramping up of production at Oxiana’s Golden Grove mine in Western Australia.
Zinc mine output is forecast to rise by 6 per cent in 2006-07 as new mines, expansions and restarts are commissioned. In particular, production from Xstrata’s Mount Isa mines is expected to increase with the completion of stage 1 of the zinc–lead concentrator expansion, with increased feed coming from the ramping up of the Black Star openpit mine. Zinc mine production is also expected to be boosted by the commencement of production from Intec’s Hellyer concentrate project (30 000 tonnes a year) in Tasmania and Teck Cominco is on schedule to restart the Lennard Shelf mine (70 000 tonnes a year) in early 2007.
Australian production of refined zinc fell by 4 per cent in 2005-06 because of once in thirty year maintenance at Zinifex’s Hobart refinery. Refined zinc output is forecast to rise by 9 per cent in 2006-07 as production at the Hobart refinery returns to normal and higher production from Sun Metals’ zinc refinery is also expected.
Australian exports earnings to rise strongly
Despite a decline in export volumes in 2005-06, export values rose by 73 per cent to $2.5 billion because of substantially higher prices. The volume of zinc concentrate and refined exports are forecast to rise by 8 per cent and 6 per cent respectively in 2006-07 as production increases. The value of zinc exports is forecast to increase by 62 per cent to $4.1 billion as a result of higher production and higher prices.