More zinc production cuts to come, smelter feed to fall off: CRU
platts.com
Palm Springs, California (Platts)--24Feb2009
The global zinc industry is in line for a further slew of production cuts over the next six to 12 months, CRU analyst Graham Deller told the American Zinc Association annual conference in Palm Springs, California, Tuesday.
"We expect more mine production cuts to be announced," Deller said. The concentrate market will tighten and smelter output will be constrained severely by a lack of feedstock, he added.
Since zinc prices began freefalling in October last year, more than 1 million mt of mine production has been removed from the Western market, Deller said, adding that this was equal to 14% total Western zinc production in 2008.
"If people are losing 100-150 mt for more than a few months they will close; there is not the sort of money around to fund these sorts of losses," Deller said.
While some commentators have labelled the current economic crash the worst global financial crisis since the Great Depression of the 1930s, Deller said it was not yet clear it had reached that level of severity, or indeed was any worse than downturns in the 1980s and 1970s, adding: "China was not a player then -- Chinese growth has slowed a lot, but is still lifting the global average."
A factor common to both the zinc industry and to the current downturn has been the reaction of smelters to tumbling prices and a falloff in demand from major consumers; the automotive and construction industries.
Global zinc mine production has fallen off sharply as miners at the top end of the cost curve find operations unprofitable and shut shop, removing more than 1 million mt of concentrate from the market.
This time, it is the largest smelting companies that have cut back, said Deller. Historically, falls in LME prices caused mines to cut back or close and it was rare for smelters to exit the market.
A trio of European smelters -- Ruhr Zinc in Germany, Romania's Copsa Mica and Cartagena in Spain -- shut permanently last year, knocking a total of 237, 000/year of finished zinc metal out of the market. Numerous other smelters made significant cuts in production, including Russia's Chelyabinsk, which slashed output by 50% from 180,000 mt and Teck Comincos Trail operation, which cut output 15-20%.
CUTBACKS PROMISE LONG-TERM BOOST
Deller said the 1 million mt of finished metal taken out of the market since October did not take into account the numerous cutbacks and closures rumoured in China that were yet to show up in official data.
During the last downturn, Western refined output did not start falling in earnest until five years after prices started heading down, he said.
One step has been removed from the old chain of reaction: Metal supply has been limited a lot earlier. These cutbacks are a response to poor demand as much as they are to price weakness, he said.
Predicting a 2009 market surplus of 200,000 mt -- an historic low -- Deller said he believed the long-term outlook for zinc, however gloomy at present, was positive for market players who could ride out the downturn.
"We are very bullish long-term on zinc and see high prices towards 2013," Deller said. "Although at the moment all participants are waiting to see if they are the last man standing, anyone who can stay in the business can look forward to profitable times in the future."
Although smelters have reacted quickly to the slump in demand for zinc, annual treatment charge talks look to have found favour among zinc miners, according to sources.
The benchmark TC for 2009 agreed by global zinc giants Teck Cominco and Korea Zinc settled at $194/mt on a basis price of $1,250/mt with de-escalators and escalators of 10 cents, according to trusted sources speaking to Platts at the AZA conference Tuesday.
The settlement represents a lower benchmark fee from smelters, which agreed to 2008 TCs of around $330/mt on a basis price of $2,500/mt. Market players anticipate a balanced or deficit concentrate market as 2009 unfolds. -- Michelle Madsen, michelle_madsen@platts.com |
