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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (14477)	11/13/2015 9:35:05 AM
From: Goose94	Respond to of 203679

Shrinking Supply... and why it should be positive for the price of zinc In the past month two fundamental shifts have reduced annual zinc supply by 1M tonnes. 1. Glencore announced that it was cutting its production by 500k tonnes annually. 2. Two significant mines have closed or announced their closing. The world’s third largest zinc mine, the Century Mine in Australia stopped mining in August and will wind down the milling of remaining ore by the end of 2015. Another significant mine, the Lisheen mine in Ireland is closing in November 2015. Since 2013, with these closures, approximately 15% of global supply has disappeared at a time when demand is growing at 4% per year. A recent report from Haywood Securities and supported by recent presentations by Teck, argue that there are no new large advanced stage development projects coming online to replace the production capacity lost by mine closures. Against consensus, Teck went further to suggest that Chinese production is actually declining, which will further add to the supply shortage. Zinc miner Nyrstar announced recently that they will consider further suspensions of their mines if the current depressed commodity price environment continues; such suspensions would potentially reduce global supply by up to a further 400,000 tonnes of zinc concentrate. The only meaningful source to fill the demand gap is current inventories. When these inventories dry up, zinc prices will respond positively. LME Inventories In addition to reduced mine output, zinc inventories as measured by the LME have been decreasing for some time. In fact, inventories are less than 50% of their 2012 peak and were recently less than 500kt for the first time since 2010. Any accelerated drawdowns from LME in the months ahead would be a strong signal of the supply crunch taking effect. The last time inventories dropped to the levels of today, zinc prices doubled to more than $2.00 per pound between 2005 and late 2007. Growing demand and recent demand drivers 50% of all zinc is used in the galvanization of steel. Much of that steel goes into new automobile manufacturing and infrastructure. Global automotive sales are at record levels driven by strength in the Chinese domestic market. Sales are up significantly, and there is evidence to support that Chinese domestic supply will not be able to keep up with the demand for zinc. The last three months have seen record amounts of zinc concentrate imports into China. Total concentrate imports are up 56% in the past 7 months. Many governments, including ours, are committing funds to increased infrastructure spending which will further drive demand. John Kaiser, of Kaiser Research Online, along with Teck, believe that sustained pressure on China to improve their environmental standards will further curtail local mining production in favour of imports. Summary The zinc market continues to face a significant medium-term supply shortage which when combined with the rising demand for zinc could result in a sharp rise in zinc price in the coming months. Haywood Securities estimates that USD $5 billion in new mine development will be required to increase production to close the supply gap in the coming years. Julian Kettle, Vice Chairman of Metals and Mining at Wood McKenzie in a recent presentation at the LME in London estimated that miners would need to invest $150 billion to avoid a looming shortage across all sectors. When speaking to zinc, Kettle commented that “the need for Investment in Zinc and Lead is becoming desperate”.