Please find below, for your information, a March 14, 2013 Bloomberg article commenting on the approaching shortage of zinc supply.
The first retreat in Chinese zinc output in three decades and record global demand are spurring Morgan Stanley to predict the end of a six-year glut.
Consumption will outpace supply of refined metal by about 100,000 metric tons in 2013, equal to what the U.S. consumes in a month, with at least four more years of deficits, the bank estimates. Zinc will rally as much as 19 percent to $2,350 a ton by the end of December, according to the median of 11 analyst estimates compiled by Bloomberg.
Prices that fell 57 percent from a record in November 2006 drove refiners in
China, the biggest producer, to cut annual output for the first time since 1983. Supply is declining just as steelmakers, the largest users, expand steel smelting at three times last year�s pace. While zinc stockpiles are near their highest in two decades, about 60 percent of the metal may be tied up in financial transactions and unavailable to consumers, Societe Generale SA estimates.
�All of the signs to me are that demand is improving,� said
Peter Richardson, the chief metals economist at Morgan Stanley in
Melbourne who has tracked metals for a quarter century. �Supply in
the form of inventory availability is restrained and likely to become more restrained.�
Zinc fell 4.7 percent to $1,981.75 this year on the London Metal Exchange as the bourse�s LMEX Index of six metals dropped 2.7 percent. The Standard & Poor�s GSCI gauge of 24 commodities gained 0.4 percent and the
MSCI All-Country World Index (MXWD) of equities gained 6.3 percent. Treasuries lost 0.6 percent, a Bank of America Corp. index shows.
Chinese Output
Refined supply declined 3.5 percent to 12.66 million tons last year, as Chinese output retreated 7.5 percent to 4.83 million tons, according to the Lisbon-based International Lead & Zinc Study
Group. Consumption dropped 2.8 percent.
Production will rebound 5.6 percent to 13.59 million tons this year, as demand surges 9.6 percent to 13.59 million tons, Morgan Stanley estimates.
Supply is also constrained because so much is locked up in warehouses and can�t trade freely. Stockpiles monitored by the LME jumped 39 percent to 1.21 million tons in the past year. As much as 60 percent of stockpiled metal may be tied into financing deals, according to
Societe Generale, which expects a supply deficit of 270,000 tons this year.
The transactions typically involve a simultaneous purchase of metal for nearby delivery and a forward sale to take advantage of a market in contango, when contracts with later delivery months cost more than nearer-dated metal. Zinc for delivery in June 2014 is trading at a 4.2 percent premium to this month on the LME.
Canceled Warrants
Orders to remove zinc from warehouses, measured through so- called canceled warrants, now represent 49 percent of inventory, from 2.1 percent a year ago, data from the LME show. Stored
metal tracked by the Shanghai Futures Exchange is already 15 percent lower than a year ago, according to the bourse.
About 50 percent of zinc is used to rust-proof steel, 17 percent goes into brass and bronze and the same amount into die- cast products from bathroom fixtures to car parts, data compiled by Bloomberg Industries show. Global steel output will advance 4.7 percent to a record 1.62 billion tons this year, from growth of 1.4 percent in 2012, according to MEPS (International) Ltd., a Sheffield, England-based industry consultant.
Slowing Economies
Any turnaround in the zinc market, where prices have dropped in four of the past six years, may be undermined by signs of slowing economies, with the 17-nation euro region already back in recession.
Europe accounts for 18 percent of zinc demand, according to Barclays Plc. While the
International Monetary Fund expects global economic growth of 3.5 percent this year, from 3.2 percent in 2012, the Washington-based group cut its estimate three times since July.
Barclays says the surplus will decline to 273,000 tons this year, from 338,000 tons in 2012. Goldman Sachs Group Inc. said in January the glut would narrow 54 percent to 181,000 tons in 2013 and this month projected a price of $2,100 in 12 months, or 6.1 percent more than now. Gains in Chinese production should offset growth in demand, the bank said.
As refiners curbed supply last year, mines produced 5.1 percent more, according to the study group. Mines will expand another 6.7 percent this year, Morgan Stanley estimates.
Ore Available
There is ample ore available to increase refined output at the right price, Macquarie Group Ltd. said in a report Feb. 25. Chinese zinc production reached a record 479,983 tons in December, after futures rebounded 9.4 percent in November, Beijing Antaike Information & Technology Co. estimates. The average Chinese smelter needs $2,500 to break even, or 26 percent more than now, according to Liu Mengluan, an analyst at the state-backed research company.
The predicted rally in prices comes as
Xstrata Plc (XTA) closes its Brunswick mine in
Canada this month, an operation which yielded 2.9 million tons of ore last year. About 841,000 tons of mine output will be lost by 2014 as Xstrata also shuts the Perseverance mine in Canada and
Vedanta Resources Plc (VED) closes Lisheen in Ireland, said Kenneth Hoffman, an analyst at Bloomberg Industries in Skillman,
New Jersey. The total will rise to 2 million tons by 2017, he said.
Global car sales will advance 2.4 percent to 82.7 million units this year, according to LMC Automotive Ltd., a research company based in Oxford,
England. About 17 pounds of zinc are used to protect the average vehicle from
rust, 20 pounds goes into parts including handles and locks, and each tire contains about half a pound of the metal, according to the American Galvanizers Association.
Roads, Railways
Demand in China, which consumes 45 percent of supply, will rise 13 percent to 6.07 million tons this year, Morgan Stanley estimates. The nation�s government said March 5 it planned to open 5,200 kilometers (3,200 miles) of new railway lines and build 80,000 kilometers of highways, boosting demand for steel. Urbanization will bolster metals demand,
Jiangxi Copper Co. (358), the country�s largest producer, said the same day.
�China�s appetite for zinc will continue to increase this year for infrastructure,�
Tetsu Emori, the chief
fund manager at Astmax Investment Management Inc. in
Tokyo, which manages about $760 million of assets. �Economies in the U.S. and Europe will gradually be improving this year, supporting demand prospects for industrial metals.�
To contact the reporter on this story: Jae Hur in Tokyo at
jhur1@bloomberg.netTo contact the editor responsible for this story: Brett Miller at
bmiller30@bloomberg.netAbout Canada Zinc Metals Corp. (TSX.V : CZX ; Frankfurt: A0RAQJ )
Canada Zinc Metals is a mineral exploration company focused on unlocking the potential of a future long life mining district in British Columbia, Canada. The Company is the dominant land holder in a world class mineral belt called the Kechika Trough which hosts in excess of 80 million tonnes of base metal resources.
Canada Zinc Metals owns a total of 77,855 hectares in 235 mineral claims which extend northwestward from the Akie property for a distance of 140 km.
The Company has outlined a NI 43-101 compliant mineral resource at its flagship Akie property, including an indicated resource of 12.7 million tonnes grading 8.4% zinc, 1.7% lead and 13.7 g/t silver (at a 5% zinc cut-off grade) and an inferred resource of 16.3 million tonnes grading 7.4% zinc, 1.3% lead and 11.6 g/t silver (at a 5% zinc cut-off grade). Using this estimate, the deposit contains 2.35 billion pounds of zinc, 471.8 million pounds of lead and 5.6 million ounces of silver in the indicated category, and 2.65 billion pounds of zinc, 482.2 million pounds of lead and 6.1 million ounces of silver in the inferred category (at 5% zinc cut-off). The deposit remains open in all directions.
Tongling Nonferrous Metals Group and Lundin Mining are significant shareholders of the Company.