Zinc Market Lags as ILZSG Reports 2012 Surplus

Zinc Market Lags as ILZSG Reports 2012 Surplus

As is the case for many metals these days, concerns about US fiscal issues are weighing on the zinc market.

Traders interviewed by Platts reported that buying of zinc alloys has “dried up,” with one seller noting that “people are reluctant to do anything.” Platts’ price assessment for special high-grade zinc stands at 8 cents/lb plus London Metal Exchange (LME) cash.

Prices for zinc Alloy No. 3 currently stand at 18 cents/lb, although some sellers reported that buyers are reluctant to purchase long-term volumes at these prices.

One alloyer said, however, that as the cost of fuel and insurance have gone up “dramatically,” there is little room for producers to lower their asking prices.

LME zinc is currently selling above $0.97/lb, having risen steadily during the second half of January. Prior to January 15, prices had languished below $0.90/lb after falling during the first half of the month.

The value of zinc mined in the US during 2012 was about $1.53 billion, according to US Geological Survey numbers released last month. American mine output was an estimated 748,000 metric tons (MT), a 2.7-percent decline from 2011.

While US zinc production remains steady, the import-export market is changing. American zinc ore and concentrate imports fell to a five-year low of just 6,000 MT in 2012 — down 78 percent from 2011 — while exports of US mined zinc fell 32 percent, to 448,000 MT.

China remained the world’s largest zinc producer in 2012, putting out 4.6 million MT. Australia and Peru round out the top three, having respectively produced 1.49 million MT and 1.27 million MT.

Australia holds the world’s largest assessed zinc reserves, at 70 million MT.

Global refined zinc production declined by 2 percent in 2012, to 12.9 million tons, according to the International Lead and Zinc Study Group (ILZSG). World consumption also dropped to 12.7 million tons, creating a market surplus of 153,000 tons during the year.

The biggest drag on the market was Europe, where consumption fell by 5 percent. A larger surplus is forecast for 2013.

Global zinc mine production was up 7.1 percent during the first 11 months of 2012, according to other data from the ILZSG. Mine output totaled 12.6 million MT during this period.

The increase in zinc mining was largely driven by China, which grew its production by 20.2 percent year-on-year.

The government of India may sell the 29.5-percent stake it owns in major producer Hindustan Zinc (BSE:500188), according to local media reports. The government would also divest its 49-percent share in Bharat Aluminum Company.

“There is little sense for the government to hold on to these two firms. A further disinvestment in them would also help raise much needed resources to finance the deficit,” an official familiar with the situation told The Indian Express.

Chinese demand for imported zinc concentrate may drop off significantly this year, according to government consultancy Beijing Antaike. The service reported last week that it expects treatment charges for imported concentrate in China to rise to between $110 and $185 per MT. Last year, treatment charges ranged from $45 to $130 per MT.

Smelters usually increase their treatment charges when concentrate feed is abundant. Antaike said that increased domestic production of zinc concentrate in China will mean lower demand for imports.

Company news

Chesapeake Gold (TSXV:CKG) released positive results from a prefeasibility study on its Metates gold-silver project, which is located in Durango state, Mexico. The study shows that the deposit contains 4.2 billion pounds of zinc in addition to precious metals. Over a 25-year mine life, the project is expected to produce 190 million pounds of zinc yearly.

Zinc output ramped up during the fourth quarter of 2012 at Lundin Mining’s (TSX:LUN) Neves-Corvo mine in Portugal. Throughput into the mine’s new zinc plant rose 75 percent from the previous quarter.

Zinc output from Neves-Corvo totaled just over 30,000 MT of contained metal in 2012, coming in at the high end of company guidance, which had forecast 25,000 to 30,000 MT production. Guidance for 2013 is up, at 45,000 to 50,000 MT.

Silver-zinc producer Silver Standard Resources (NASDAQ:SSRI,TSX:SSO) announced that it produced 11.2 million pounds of zinc in 2012. The company’s Pirquitas mine in Argentina produces zinc as by-product from silver ore at a grade of approximately 0.65 percent.

Silver Standard is targeting increased production of 20 million pounds of zinc in 2013.

Would-be producer Canadian Zinc (TSXV:CZN) announced last month that it has received water licenses and land-use permits for its Prairie Creek mine in the Northwest Territories. The approvals come on the heels of several technical sessions with the government and First Nations officials in late 2012.

Peruvian explorer Tinka Resources (TSXV:TK) drilled 70 meters of 4.8-percent zinc as part of an ongoing drill campaign at its Ayawilca project. This drillhole A12-08 is the best intercept of zinc mineralization so far observed at the project, and includes 12.5 meters grading 10.9 percent zinc.

Also in Latin America, Excellon Resources (TSX:EXN) announced that it will drill up to 70,000 meters on its Platosa silver-lead-zinc property in Mexico. Highlights from 2012 drilling on the project include 55.46 meters grading 1.74 percent zinc, 3.13 percent lead and 132 g/t silver.

 

Securities Disclosure: I, Dave Forest, do not hold equity interest in any companies mentioned in this article.