Miners stand to benefit from improved zinc market

Despite recent weakness in the zinc market, the next few years should witness not only a firming in the zinc price but also a decline in smelting charges and consequent disproportionate increase in the receipts of zinc miners.

These conclusions emerge from an in-depth study titled Zinc — Concentrate Market Developments in the 1990s, recently published by the London-based Metals and Minerals Research Services (MMRS).

The latest study is the third in a series of major investigations of the zinc industry which MMRS has undertaken since 1982. The first study pinpointed the changing fortunes of the zinc market postulating that, after almost a decade of decline, consumption was set to resume a sustained upward path with industry participants prospering as a result.

Indeed, since 1982 refined zinc consumption has increased steadily to reach a post-war record of 4.95 million tonnes last year, surpassing the previous peak recorded as far back as 1973. Supplies have not kept pace with demand and the last five years have witnessed a continual decline in metal stocks such that, by any historical yardstick, inventory cover is now extremely low.

Although MMRS does not anticipate any consumption gain for 1987 (nor any imminent jump in the zinc price), thereafter the upward trend is expected to resume with consumption reaching around 5.5 million tonnes in 1991 and 5.75 million tonnes in 1995.

In contrast, zinc mine capacity is not expected to increase. Indeed, through to 1990, MMRS anticipates some decline in mine capacity as closures (approaching a combined 700,000 tonnes and occurring primarily in Canad a, Europe and Africa) more than offset expansions and new mine openings. Even allowing for likely new major mine developments thereafter, available capacity by the end of 1995 is still unlikely to exceed today’s figure.

Given these anticipated supply and demand developments, MMRS expects the free market zinc price through to, and immediately beyond, 1990 to trade in the range 35-to-40 cents per pound in today’s money values, with intermittent periods of even better prices.

The anticipated underlying strength of demand and absence of mine capacity growth will, in MMRS’s opinion, give rise to a prolonged structural shortage of custom zinc concentrates to the detriment of custom smelters.

Smelters in Europe stand to be particularly hard hit, since the vast majority of mine closures will occur on the Atlantic side of North America, in Africa and within Europe itself, while mine expansions and additions will take place on the western side of North America and in Asia and Australia.

With competiton for zinc concentrates “hotting up,” the smelters will be forced to offer increasingly favorable terms to suppliers.

With mining companies’ share of revenue rising, and with the zinc metal price also firming, miners will experience both a relative and absolute increase in revenue. For the current year, the revenue per tonne of zinc metal accruing to miners is expected to be broadly similar to 1986. However, 1988 and 1989 should witness a significant improvement.