Volatile zinc prices likely to stay high

Like other base metals which have seen their prices skyrocket, zinc is benefiting from low inventories. So low are producer inventories for the metal, writes investment firm Brown Baldwin Nisker James Capel of Toronto, that you have to go back to 1974 to find similar levels. (Producer inventories bottomed near 200,000 tonnes that year.)

“Producer inventories were short (and) prices high, and typically the down-stream part of the industry was loaded up,” says a recent company publication.

“Within a year, customers cancelling orders and living off their inventories caused producer inventories to rise to 850,000 tonnes. Fortunately, it looks as if some lessons have been learned.” Inventories kept down

Inventories in 1981-82 increased dramatically but a quick reduction in supply acted to keep inventories in check. Also, consumers were less overstocked. Prices did not take off as they had in 1974, however, and hoarding was not encouraged.

“Whether consumers are beginning to hoard in the face of the recent price run is not clear,” says the company. “So far U.S. statistics show no change in the low consumer inventories. LME inventories are also at minimum levels. As with most metals, we now have zinc in the fold of the typically tight scenario, waiting very, very patiently for signs of economic slowdown to bail out.”

Zinc is undergoing pricing changes on the international markets, with the LME apparently emerging as the favored reference point for marginal pricing.

“Given the fact we are in a transition in zinc pricing both in grade and market structure, it will not be surprising if the 1989 concentrate contracts take a little longer than normal to be settled,” writes Brown Baldwin. “As a result, the market price (as for most metals) will likely remain volatile and high, until we see an economic slowdown.”

Zinc’s main applications are in galvanizing, diecasting and as an alloy metal in brass.

Strong growth for the industrial mineral kaolin is foreseen at least until 1990, Roskill Information Services of London writes in a new study.

New kaolin production capacity was last installed immediately before the onset of the 1980s recession, the company reports. Demand has since caught up with world capacity; production growth averaged 5% per year from 16.9 million tonnes in 1982 to a record 21.8 million tonnes in 1987.

Despite a wide range of other end-uses (in fine ceramics, as a specialist filler in plastics and paints, in refractories, bricks, rubber and agricultural products), about half of the world output of kaolin goes into paper-making (filling many types of paper and in the coating of printing and writing papers).

Neither slow population growth in the industrialized countries, nor rapid computerization, appear to have slowed the growth in paper consumption, Roskill writes. Production of paper in Japan and the U.S. grew by an estimated 5% in 1988. West European capacity for printing and writing paper is forecast to grow by 3.4% up to 1991. Kaolin-intensive papers, Roskill writes, are the fastest growing sector of the industry.

Lightweight coated papers (containing up to 40% by weight of mineral fillers and coatings) are important to the ever-growing advertising industry, says Roskill. While printing and writing papers as a whole are expected to grow at around 3% per year into the 1990s, production of lightweight coated papers is expected to grow 4-5% per year.

The quality of kaolin deposits in the U.K., U.S. and Brazil is exceptional, Roskill says. Improved processing techniques are enabling other producers to market paper grade kaolins on an increasing scale.

In Canada, Fargo Resources and Brenda Mines are exploring for kaolin on the Lang Bay property at Powell River, B.C.

A gold producer is a gold producer, but what might have been considered a tier 3 or emerging gold producer 10 years ago could be turning out 50,000-150,000 oz of the precious metal today, says a market watcher.

Commenting on the change in producer classifications in a recent edition of Robert Bishop’s Penny Mining Stock Report was precious metals analyst Peter Cavelti of Toronto. His remarks are related to a question about “junior tier” companies.

“A senior producer,” said Cavelti, “used to produce 200,000+ oz per year; now the really big companies are in the 500,000, 700,000, or even a million-oz-a-year league. The big companies now are those like Newmont, Echo Bay and Placer (Dome), which are almost at the same production level of some of the South African companies. * *

“Then you have tier 2 companies like Cambior and Pegasus who produce 200,000 oz per year. The tier 3 companies are companies that produce 50,000 to 150,000 oz of gold per year. The new juniors are companies that produce 40,000 and 30,000 oz per year, companies like Muscocho. So there has been a tremendous change in perception. * .”

A ban on exports of copper, aluminum, nickel and their alloys, and on platinum and yellow phosphorus, was implemented Jan 1 by China. Current contracts will be honored until the end of February.

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