(MB) - Zinc producers succumb to low prices
2001-10-31 17:01 (New York)
October 31 (Metal Bulletin) - Asarco, Boliden, Breakwater and
Hudson Bay have all announced cuts or closures this week as
zinc producers finally caved in to the pressure of historically
low zinc prices.
Over the next few weeks Asarco will suspend its zinc mining and
processing operations in Tennessee which produce around 56,000
tpy of zinc in concentrate. Boliden will temporarily halt
production at its Myra Falls zinc and copper mine in British
Columbia for three months beginning December 3 which will lead
to the loss of around 15,000 tonnes of copper concentrate and
30,000 tonnes of zinc concentrate.
Meanwhile Breakwater and Hudson said that they will close mines
next year as both companies foresee the current depressed
prices continuing into next year. Breakwater Resources is to
close its Nanisivik mine in September 2002. During the first
six months of 2001 the mine had an operating loss of $8.3m and
produced 23,439 tonnes of zinc in concentrate. Hudson Bay
Mining and Smelting Co, a wholly owned subsidiary of Anglo
American is to permanently close its Ruttan zinc and copper
mine in Manitoba by May 2002. Ruttan, which produces some
30,000 tpy of zinc-in-concentrate and a lower quantity of
copper-in-concentrate, is a supplier of concentrate feed for
the Flin Flon plant in Manitoba which was recently expanded to
a capacity of 114,000 tpy of cast zinc.
Each of the companies cited historical lows in the zinc market
as the reason for the closure, and analysts estimate that
around 30-50% of mines are operating at a loss at today's
prices. However LME zinc prices remained unmoved by the news on
October 30 with prices hovering around $775 per tonne on a
three-month basis.
"Unfortunately the production cuts will do little to reduce the
expected surplus in the zinc market... Even allowing for the
production cuts, we still expect the market to endure a surplus
of 275,000 tonnes this year and 248,000 tonnes net year," said
HSBC in a recent report adding that zinc prices are likely to
remain under pressure for some time.
The US zinc market is unperturbed by Asarco's earlier-than-
expected decision to phase out zinc production at three
domestic mines.
High concentrate stocks are expected to mitigate the impact on
three major smelters that source feed from Asarco.
Additionally, market participants said the vitality of the
market was dependent on North American producers following suit
with more significant production cuts.
Market participants are looking to such major North American
producers as Noranda or Teck Cominco to follow suit with enough
production cuts to stimulate price recovery.
Zinc prices have stagnated at 15-year lows near 34 cents per
lb. Most major operations break even at between 37 and 42 cents
per lb, sources said. Teck Cominco said that its Trail
facilities break even at 36 cents per lb for zinc, but that
included credits for precious and electronic-grade metal by-
products.
In Singapore, meanwhile, zinc premiums are holding steady in
thin trading conditions, as high inventories at port continue
to dash hopes of any revived consumer interest.
Business remains slack in the physical zinc market, with
traders reporting virtually no new deals concluded in recent
weeks. Demand is also not expected to move upwards again until
excessive stocks at port are consumed and the regional economic
situation improves.
In particular, end-users who were previously purchasing Chinese
Torch material have substituted their buying with HX or Nanhua
due to the lower premiums, market players said. "It's about the
same quality so most of them are now not willing to pay a
higher premium anymore," one source noted.
Singapore in-warehouse premiums for zinc are currently offered
by traders at $10 per tonne over LME for Torch material and
around $8 over LME for Nanhua and HX material.
Metal Bulletin Research is forecasting a 260,000-tonne surplus
of zinc next year.
Lower demand for galvanised steel and HDG coil, coupled with an
increase in Western World mining and smelting capacity of
around 3% each, has placed continued pressure on zinc prices.
MBR is expecting an average spot price of around $840 per tonne
in 2002 compared with $890 per tonne this year.
Meanwhile, the International Lead & Zinc Study Group (ILZSG) is
also expecting to see a "a substantial surplus" of refined zinc
in both 2001 and 2002.
The scale of the surplus in 2002 is currently estimated at
about 500,000 tonnes but could be reduced if present production
plans are curtailed as a result of low price levels, the ILZSG
said. Refined zinc metal production is expected to increase in
2001 by 4.1% globally and by 2.9% in the West, and by a further
4.6% and 5.6% respectively in 2002 according to the latest
figures from the group.
World zinc mine output is expected to rise by 4.7% in 2001 and
a further 2.5% in 2002. In the West increases of 3.6% and 2.9%
are anticipated. Global usage of refined zinc metal is expected
to contract by 0.7% in 2001 and by 3.1% in 2002. The fall in
2001 will be heavily influenced by a predicted 10.7% decrease
in the USA.
In 2002, however, usage is forecast to increase by 1.8%
worldwide and by 1.3% in the West with a recovery of 3.6%
predicted for the USA. "Demand in Asia is expected to continue
to grow, by 2.8% in 2001 and 2% in 2002, primarily as a
consequence of further increases in China," the ILZSG added.
Metal Bulletin newsroom, London Tel +44 207 827 9977 Fax +44
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