Claude:
Re: San Cristobal <<too much zinc>>. Zinc has the best fundamental outlook of all the base metals. Next to silver it has the best price appreciation prospects of all industrial metals. In fact, some famous silver mines are really zinc mines with silver by-products as measured by the proportional contributions to net smelter revenue.
Zinc inventories are declining despite Asian economic slowdown. Why? Not enough zinc smelter capacity to supply demand. And, only about 250,000 metric tonnes of added smelter capacity is to be added. Consumption, currently depressed about 3% by Asia, is running at 8,000,000 metric tonnes. Hence, additional smelter capacity is only 3.06% of DEPRESSED consumption. Consumption will rebound materially, possibly by more than 3.6% in a single year alone as has bee the recent record, as pent up demand is released when Asian economies rebound; a rate of 8,600,000 tonnes/yr by 2000 is probable.
Bottom line is that total world inventory - now about 800,000 tonnes - will continue to decline as there will not be sufficient smelter capacity expansion. Inventory could drop to around 600,000 tonnes by year-end 2000. Presently, LME inventory is dropping at about 700 tonnes per day on average!!!
This scenario will leave the inventory/consumption ratio at about 3.6 weeks. That would constitute a "shortage scenario."
Zinc prices, currently US$0.439/lb., are forecast by others - First Marathon for example - to rebound to US$0.70 per pound in the coming 18 months. I believe even higher prices could be seen in a shortage scenario with "rogue traders" manipulating LME market for zinc (look at zinc price spike of a couple years ago).
Best of all worlds will be to have a zinc-rich silver mine.
RH
PS PAA's Quiruivilca Mine (Peru) is such. More smelter revenue from zinc than from silver!! PAA is going to be an absolute blast with both silver and zinc in bull markets in the coming months. |
