OZ Minerals CEO expects more zinc cuts in Europe
uk.reuters.com
Fri Feb 27, 2009 5:53am GMT
SYDNEY, Feb 27 (Reuters) - European zinc producers are preparing to make further production cuts to combat a growing supply glut and weak prices, world No. 2 producer OZ Minerals Ltd (OZL.AX) said on Friday.
Output has already been slashed by 10 percent, or 1 million tonnes worldwide -- more than a quarter coming from European producers so far -- in response to the sharp decline in demand for zinc in galvanised steel making that's led to a 55 percent fall in zinc prices in the past one year.
The production cuts to date are causing sharp drops in spot treatment and refining charges in Asia and are also responsible for decline in this year's benchmark terms, which are now being settled at much more favourable terms for miners but had yet to arrest falling metal prices, Oz Minerals Chief Executive Andrew Michelmore told reporters.
"We've seen over a million tonnes come off," he told reporters, and added a significant amount of tonnage had also been eliminated in China.
Spot treatment charges for zinc concentrates shipped to China for smelting have plummeted to $110-$120 tonne from $190 a tonne at the start of 2009, Michelmore said.
"If the market was so oversupplied (with concentrate) the treatment charges would be rising, but in fact they are falling," he said.
Sources told Reuters this week the benchmark was set at $194 per tonne based on a $1,250 a tonne London Metal Exchange zinc price [ID:nN25445522]
Further production cuts are likely to occur among the producers in Europe where a strong euro was providing little cushion for suppliers, given the hefty declines in U.S. dollar zinc prices, he said.
In Europe, Germany's Ruhr Zinc, Romania's Copsa Mica and Romanian zinc and Sometra, Bulgaria's KCM and Cartagena in Spain have closed or trimmed back, removing some 300,000 tonnes of zinc from the supply pool.
Benchmark three-month London Metal Exchange zinc MZN3 currently sells for about $1,130 a tonne, compared with $2,500 a tonne a year ago.
Oz Minerals last year reduced output from its Golden Grove and Century mines but has no immediate plans to make further cuts in 2009, according to Michelmore.
Oz Minerals is under a friendly takeover offer from China's Minmetals, which has said it would continue to run the mine if the offer succeeds.
"I would anticipate that we'll see more production come off in Europe, "Michelmore said.
In the meantime, he said the supply-demand balance for zinc concentrates was being be heavily influenced by China's mine and smelter production mix.
"In 2009, we expect Chinese smelters to continue only to import enough concentrate to meet their own domestic metal demand, Michelmore said.
In physical markets, zinc premiums for LME-grade zinc had dropped to $15-$35 per tonne from $30-$50 in January in Singapore.
Many buyers were contracting for only 40-50 percent of their anticipated requirements due to uncertainty over demand for the rest of the year, Michelmore said. "Normally they would be sitting at 80-90 percent of their requirements." (Reporting by James Regan; Editing by Sambit Mohanty)
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