(MBR) - Zinc market analysis 5/21/99
May 21 (Metal Bulletin Research) -- After starting April at
sub-$1,000/t levels, the cash price moved rapidly higher this
month, reaching a peak of $1,074/t at the end of the month.
Further gains were seen in early May. An improvement across the
base metals complex seemed to be one factor behind this rally,
but supply problems, against a background of relatively tight
fundamentals, meant zinc had plenty of reasons for moving
upwards. Contrary to this, LME stocks actually started to rise
in April, which was the first increase since November 1997. The
April increase was 11,225t compared to a 7,100t fall in March.
Stock draw downs were seen in early May.
On the mining side, Breakwater Resources expects its production
to be up 30% in 1999. This is assuming a full year of output at
the Bougrine mine in Tunisia, which started up in May 1998, and
greater output from its El Toqui mine in Chile. The company,
which produced 133,700 tonnes of zinc concentrates in 1998,
plans to produce 174,400 tonnes in 1999. Breakwater is also
aiming to reduce production costs by a further 10% in 1999,
having achieved 43›/lb in 1998.
Similarly, Tara Mines lead and zinc mining complex, 100% owned
by Outokumpu, has presented a cost cutting plan to unions
representing its workforce, in a move to significantly increase
productivity. Tara Mines, which is currently producing zinc at
a total cost of $1,150/tonne, has set itself a target total
production cost of $1,000/tonne by the second half of 1999.
Tara is also planning to increase production which stood at
140,000 tonnes of zinc in concentrates and 40,000 tonnes of
lead in concentrates in 1998. The company plans to increase
this to 190,000 tpy and 50,000 tpy respectively.
Meanwhile, the partners in Peru's Antamina project are in
active negotiations to place a large majority of the mine's
copper-zinc concentrates. Antamina's lending banks and export
credit agencies are reported to require 80-90% of production to
be sold forward, although in practice nearly 100% will be pre-
sold. So far, around one-third of copper concentrates and one-
quarter of zinc concentrates have been tied up in deals with LG
Metals and Mitsubishi Materials announced in late March. The
project's $1.26bn commercial financing package is unlikely to
be completed before June, and start-up is not expected until
2001.
Traditionally LME prices encourage higher exports from China,
although this year could be an exception with a 20.7% year-on-
year fall seen in the first two months of this year. It appears
that the Chinese are struggling to source concentrate with the
country's largest zinc producer, the 330,000 tpy Huludao Zinc
Smelter, reducing output by around 50% due to an acute shortage
of zinc concentrates and lack of working capital. Part of its
production stopped in February, during the Chinese New Year
holidays, and in March it was reported that about 50% of its
production lines were closed. This could result in Huludao
facing a production deficit of around 100,000 tonnes this year
- which could swing the global market into deficit.
In Australia, Pasminco has temporarily closed a refinery column
at its Cockle Creek smelter following the discovery of a
leakage of zinc from the lower section of the column on April
11. Production at the Imperial smelter furnace has not been
affected but refinery output will be limited to 60% of refined
metal capacity during the period of the shutdown, resulting in
the loss of 5,000-6,000 tonnes of refined zinc. Although it is
expected that this output will be recovered when the column re-
opens. Repairs should be completed on the column within six
weeks.
Potentially offsetting this, the 100,000 tpy capacity expansion
at Korea Zinc's smelter is due to come onstream by the end of
April. Korea Zinc has invested around 6bn Korean won on this
expansion, which began last year. Test-runs of its expanded
facilities began during April. In addition to this expansion,
Korea Zinc has completed the expansion of its capacity of zinc
slab casting from 300,000 tpy to 500,000 tpy but will not be
able to produce more than 400,000 tpy of zinc slab because the
company's smelting capacity is below this level.
Despite weak world prices, India's Hindustan Zinc Ltd intends
to go ahead with its plans for a greenfield smelter of 100,000
tpy capacity, costing Rs10bn, and the expansion of its two zinc
smelters at Debari and Vizag. Last year HZL exported around
50,000 tonnes of zinc concentrates and also increased
production by 17% to 412,000 tonnes of concentrate. Zinc ingot
production reached 142,000 tonnes in 1998 compared to 136,000
tonnes in 1997 and lead was 39,010 tonnes against 35,766
tonnes.
In Europe, the Trepca lead-zinc plant in Kosovo, was reported
to still be in operation in early April despite NATO attacks,
according to Greece's Mytilineos which holds a controlling
stake in the company. However, by the middle of month the plant
is thought to have ceased operations. Mytilineos has a
concentrate supply agreement with Trepca which varies from
quarter-to-quarter to cover shipment shortfalls from Trepca's
own mines. However, imports into Serbia have not been possible
since the early days of the military campaign by NATO forces
and as a result stocks of concentrate have been run down.
On the other hand, Nato air strikes have forced Yugoslavia's
Sartid to suspend production at its Vucitrn hot-dip galvanising
works and its Urosevac welded tube and pipe works in Kosovo.
Production at the main Sartid works in Smederevo is running at
around 10% of capacity, but this is largely due to a blast
furnace upgrade which closed the main furnace on March 2.
Production has been periodically interrupted by the air strikes
and the company has been unable to move steel from the works,
but the mill has otherwise been running normally. The Niksic
mill in Montenegro is operational, but it is not receiving its
normal supplies of raw materials.
While zinc prices have performed well in April, this month is
more likely to see some consolidation, with little enthusiasm
yet for a move above the psychological $1,100/t level. Having
said this, renewed problems at Huludao could be one factor
leading to a radical reassessment of the fundamentals of the
market, and helping to revive bullish sentiment.
Metal Bulletin Research, London. Tel: (44) 171 827 9977 Fax:
(44) 171 928 6539
-0- (BN ) May/21/1999 17:03
|
