Jack more from London
(MB) -- Zinc output to rise this year and next - ILZSG
10/26/98 7:18
October 23 -- World zinc mine production is expected to
increase this year and next, while refined zinc production is
also expected to grow, according to the latest forecasts by the
International Lead & Zinc Study Group following its recent
meeting in Morocco.
Worldwide zinc mine production is forecast to expand by 2.2% to
7.49m tonnes and by 3% to 3.66m tonnes in the Western world
this year, while ILZSG also anticipates a 2.8% increase in
refined zinc production to 7.93m tonnes in 1998 and in the West
by 3.4% to 5.74m tonnes.
Increases in production are expected in the USA, Germany,
Kazakhstan and Korea, but Chinese refined production is
forecast to fall 2.4% to 1.4m tonnes. Consumption is expected
to remain at a similar level to that of 1997 with a rise of
0.1% to 7.76m tonnes forecast worldwide and a fall of 0.5% in
the West to 6.37m tonnes. A decrease in exports from China
should outweigh increased shipments from the CIS contributing
to a slight deficit between supply and demand for the Western
world in 1998.
In 1999 ILZSG expects zinc consumption will rise by around 3%
worldwide to 7.99m tonnes and by the same proportion to 6.57m
tonnes in the West. Growth of 1.9% is forecast in Europe, 3.5%
in the USA and 2.8% in China. Mine output is expected to rise
by 5.1% to 7.87m tonnes worldwide and by 6.8% to 6.04m tonnes
in the West. Refined output is predicted to continue to grow in
1999 with increases of 2.1% globally to 8.09m tonnes and 2.4%
in the West to 5.87m tonnes. ILZSG anticipates that the West
will be in a small supply deficit in 1999.
ILZSG forecasts a fall in refined lead production of 0.5% to
6.02m tonnes this year, the first contraction for four years.
The largest reductions are expected in the USA, Australia,
Belgium, the UK and Indonesia. This is despite an expected
increase in mine production by 2.2% to 3.10m tonnes and in the
West by 3.8% to 2.21m tonnes, largely due to the increased
output of the Cannington mine in Australia.
World lead consumption is forecast to rise by 0.5% to 6.05m
tonnes this year and in the West by 0.3% to 5.27m tonnes. ILZSG
expects a close balance between supply and demand for lead in
the Western world in 1998.
In 1999, growth in refined lead production is expected to
resume with rises of 3.9% worldwide to 6.26m tonnes and 4.6% in
the West to 5.17m tonnes. The most significant increases are
forecast in Australia (by 25.6%) and in the USA.
However, ILZSG recognises that a major proportion of the
increases are in secondary production which is dependent on
increased availability of scrap. "Given the current low LME
price of lead it is uncertain whether the required additional
amount of scrap shall become available to the secondary
producers," ILZSG said.
Meanwhile, miners and smelters are preparing to do battle over
1999 contracts for zinc concentrates treatment charges, just a
few months after the conclusion of negotiations over 1998
terms.
Many of this year's contracts were not settled until June, some
nine months after talks began, in what turned into the longest,
and possibly most intense, round of negotiations that most of
those involved care to remember.
This year, both sides are hoping for a smoother mating season,
but the odds seem to be against a quick settlement. Smelters
and miners are keen to seek all the relief possible from the
current low LME zinc price, which will ensure that both sides
have limited room for compromise. Preliminary talks have
already begun in some quarters and intensified throughout the
rest of the year, beginning with discussions staged around the
LME dinner.
Neither the large miners, which are generally based in Canada,
Australia and Latin America, nor the major smelters in Europe,
North America and East Asia have yet to pin their names to a
target figure for 1999 contracts. However, the smelters are
sure to be looking for an increase over last year's TC of
around $185 per tonne basis $1,100, with escalators and de-
escalators of around 20 cents and 15 cents per $1 rise or fall
in the LME price.
Smelters point to a predicted concentrates supply surplus for
1999 with several mine capacity expansions due on line. These
include the new 150,000 tpy mine at Lisheen in Ireland which is
due on line in September or October 1999, plus major increases
at Western Metals' Pillara mine in Australia, which started
midway through this year, and Cominco's massive Red Dog mine in
Alaska. Although Alaskan concentrates are not normally
available until later in the year due to the short shipping
season, there could be some over spill in early 1999 from this
year's contracts as shipments were delayed from Red Dog due to
worse weather conditions than usual.
There should also be increases in production from Boliden's Los
Frailes mine in Spain and Arcon's Galmoy mine in Ireland, as
they return to full production following problems this year.
Los Frailes is due to reach full production again in February
having closed following the collapse of its tailings dam in
April, while Galmoy suffered this year from industrial action.
Of course there have also been some mine closures, with Anvil
Range's Faro mine unlikely to restart at these prices. But
overall, there are suggestions that there will be a supply
surplus in 1999, with Billiton Metals Ltd forecasting a supply
surplus for next year of 56,000 tonnes of zinc concentrates.
However, Billiton warned: "Past experience suggests that
unforeseen circumstances could very quickly alter the
picture." Others are also aware that what looks like a surplus
in October can very easily turn into a deficit in very short
order.
"I've never known a year when the forecast hasn't been for a
surplus because everyone puts forward the best-case scenario.
If everything goes to plan, then yes, there might be a surplus,
but how likely is that? Every year we have this argument on
statistics and I think it's wrong. Both sides just use the
numbers to illustrate their own case," said one major miner.
Changes to the concentrates balance are particularly likely
this year, given the depressed level of the zinc market. With
prices below $1,000 per tonne, several mines could be subject
to cutbacks or closures. "It looks like there will be more
concentrates available this year, but there's also a higher
risk of closures," one trader explained.
With this uncertainty in mind, miners are unwilling to concede
that a rise in the charge will be necessary, just yet. "I
don't really think treatment charges will go up," one European
miner said. "There have been some preliminary discussions but
I'd be surprised if we hear any firm figures until later in the
year," the miner added. However, one trader said he had heard
several miners suggest that they would be willing to accept a
$1-3 rise in the TC. "Smelters should take that offer and run.
It's unlikely to get better from a smelter's point of view. I'd
be surprised if there aren't any mine closures over the next
year," the trader said.
As well as the intrigue over where treatment charges will be
settled, industry observers will also be looking to see if the
move away from the benchmark system continues. This trend was
picked up by many miners and smelters this year, with an
increased focus on confidentiality on announcing industry-wide
treatment charges. "Someone always publicises what happens. If
it helps his cause then the miner or smelter is liable to let
it slip out," one miner said.
Metal Bulletin newsroom, London Tel +44 171 827 9977 Fax +44
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