Zinc prices may continue to decline
thehindubusinessline.com
Zinc consumption is set to increase 3.83 per cent to 11.78 million tonnes in 2008 and production will increase 3.9 per cent to 11.57 mt according to the forecast by the ILZSG.
Suresh P. Iyengar
Mumbai, Nov 23 The sharp fall in zinc prices may continue in the short term (two to three months) with no major demand forthcoming. Prices have already crashed 48 per cent from $1,700 a tonne three months back to $1,150 on Friday.
Prices declined mainly due to increase in supply from new mines and refineries. The global meltdown along with rising inventories and falling manufacturing activity have put pressure on prices. The mine expansions in Australia, Bolivia, Canada, China, India and Kazakhstan have exerted additional pressure on prices to trade lower.
Declining construction spending, automobile sales and industrial activity in the US and Europe have lowered the demand for galvanised steel. China, the key consumer of the metal, has also reported slowdown in the demand.
The Member Countries of the International Lead and Zinc Study Group (ILZSG) forecast suggests that there will be global surplus of refined zinc metal of 1.50 lakh tonnes in 2008 and 3.30 lakh tonnes in 2009, as growth in supply continues to exceed the demand. However, shutting down of smaller smelters with high production costs, may lend support to the prices.
Demand and supply
Zinc consumption is set to increase 3.83 per cent to 11.78 million tonnes in 2008, according to the forecast by the ILZSG. The rise in consumption is expected marginally lower at 3.40 per cent to 12.18 mt in 2009.
About 70 per cent of zinc consumption occurs in construction and automotive industries in the form of galvanised (zinc coated) steel or other components such as die-cast parts.
In 2008, China demand is forecast to rise by 13.2 per cent, slightly less than in 2007 while the rate of increase in demand will slowdown further to 7.6 per cent in 2009.
In Europe and the US, declines of 2.2 per cent and three per cent respectively are expected this year with usage in both regions remaining flat in 2009.
On the supply side, global zinc mine production will increase 3.9 per cent to 11.57 mt in 2008 and 5.2 per cent to 12.2 mt in 2009.
China’s zinc mine output is set to rise by about 10 per cent in 2008 with a similar increase in 2009. Meanwhile, global refined zinc metal production will increase 5.1 per cent to 11.93 mt in 2008 and by 4.8 per cent to 12.5 mt in 2009.
However, the expected rise in supply may fall marginally with the prices continuing to fall. The production cost of zinc is in the range of $730-800 a tonne. The dip in price has led to closure of several mines.
Production
Intec suspended production at its Hellyer zinc operation (32,000 tonnes a year) in Australia in September. Perilya has downsized its Broken Hill operation to produce 55,000 tonnes a year (91,000 tonnes in 2007-08). CBH Resources has also decided to reduce output at the Endeavor mine in New South Wales to around 55,000 tonnes in 2008-09 (annual capacity of around 70,000 tonnes).
Aim Resources has suspended the development of its Perkoa Zinc Project at Burkina Faso (capacity of 68 000 tonnes a year) in Africa which was under construction and scheduled to commence exports in 2009.
Hudson Bay Minerals has also announced the closure of the Balmat mine (production of 22,000 tonnes in 2007) in the US.
Given the sharp decline in prices, smelters around the world have started halting their operational activities which may reduce excess supply and halt the sliding prices. However, the larger stockpiles and poor demand from the steel sector is likely to weigh down on prices. |
