Tuesday, August 22, 2017

"Zinc's Supply Surge Is Coming"

The party in zinc, it's all anyone can talk about, may be coming to an end.

From Bloomberg Gadfly, Aug. 18:
Zinc is on a tear.

After aluminum, the metal used in galvanizing steel and sunscreens has been the best performing of the London Metal Exchange's six main contracts so far this year. Over the past week, the price chart has gone vertical -- busting through the $3,000 a metric ton level for the first time in a decade with a 5.4 percent jump Wednesday.

Zinc's moment in the spotlight has been a long time coming, but bulls should watch out -- it may be short-lived.

For much of the past decade, the metal was considered among the least attractive on the LME. Because of supply that's widely distributed among a large group of producers and a tendency to occur geologically alongside other metals like lead, copper and silver, few miners are dedicated to maintaining profitable supply and demand in zinc.

No Control
The top 10 zinc miners account for only about a third of global annual production

Go back five years, and disinvestment was the order of the day. Mine closures, such as Vedanta Resources Plc's Lisheen pit in Ireland and MMG Ltd.'s Century in Australia, would yank about 1 million tons of annual supply from the world's 13 million-ton-a-year zinc market between 2012 and 2020, MMG's CEO Andrew Michelmore said in a 2014 presentation. New projects would fill less than half the gap, he said.

Sure enough, output dipped severely last year, particularly after Glencore Plc cut output at its McArthur River and Mount Isa mines in Australia in response to slumping prices in 2015. With China's pre-Communist Party Congress construction boom providing a boost to demand, the market has now run short: Exchange inventories last month touched their lowest levels since 2007....MORE