Zinc stronger on increased demand

Labor troubles and a higher demand by the automobile industry are among the reasons given for the rise in the price of zinc to dizzying levels.

The base metal, which last year averaged 36 cents (US) per lb on the London Metal Exchange (LME) and which has averaged about 45 cents to mid-June this year, was recently selling for 67 cents . (Zinc reached 80 cents in 1974.) Falconbridge recently increased its Kidd Creek brand zinc metal sold outside North America by $150 to $1,350 per tonne.

Most base metals have been enjoying a banner year and zinc is no exception. Zinc has a low melting point (permitting easier shaping by casting) and high electrochemical activity which makes it an excellent galvanizing agent for iron and steel products. Some 40% of zinc is used in galvanizing. Zinc also alloys well with copper, to produce brass.

“As so often happens when metals are enjoying a bull run, supply disruptions emerge which exacerbate the tightness already existing in the market,” writes investment analyst Shearson Lehman Hutton in a commentary on zinc. Peruvian shipments

Shearson mentions troubles in Peru, where among other problems Minpeco declared force majeure on concentrate shipments from its 40,000 tonnes-per-year Casapalca mine, as affecting the supply side. Also, a strike at Curragh’s Faro lead- zinc mine in the Yukon stopped production there.

The result is a further tightening of the market, Shearson notes. “As there is no sign of a decline in offtake from the galvanizing sector and no apparent surge in production, we believe the tightness will be with us for some time to come,” writes the company.

In addition to a higher demand for zinc by car manufacturers, the Soviet Union, China and India are also reported to be placing orders for the base metal.

In a second-quarter outlook, Metals & Minerals Research Services of London forecasts only a slight rise in non-Communist world mine production this year (to 5.3-5.35 million tonnes) from 1987, and is predicting an average price this year of 45 cents -50 cents .

“Overall, we still feel the market will register a small surplus in 1988 and, as this becomes apparent, it should be possible for U.S. inventories to be rebuilt,” writes Metals & Minerals. “However, such surpluses are unlikely to become evident until European fabrication activity enters its third-quarter seasonal low.” *

Still with zinc, Noranda’s Canadian Electrolytic Zinc has announced plans for a major capital expansion program worth more than $5 million for its Valleyfield, Que., operation.

The program involves expansion of the existing production facilities to produce zinc battery powder for the alkaline battery market (the batteries use high purity zinc in powder form). Construction of the plant is scheduled to be under way this month and it should be ready for production during the fall of 1989.

The new facility will be built adjacent to the existing Valleyfield zinc refinery, which has an annual production capacity of 240,000 tonnes and a workforce of 750 people. Production capacity of the new alkaline battery powder plant is expected to exceed 25 million lb annually, with the facility employing 14 people.

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“Whatever happened to the summer doldrums?” asks First Marathon Securities of Toronto, noting a change in pattern. “It seems to us that the summer months in the metals markets used to be slow and boring. Low volumes of physical business were the norm and price changes were minor.”

The reason for the change, says the securities firm, is the strong demand for base metals coupled with low inventories.

The company notes that during the summer of 1987 metals prices also strengthened, with the difference then being that low inventories did not prevent consumers from purchasing metals at reasonable prices. One has only to look at the spiralling price of nickel this year to appreciate the change.

Market observers, First Marathon included, have pointed out the state of backwardation (the forward price is lower than the cash, or spot, price) that has existed of late for the base metals copper, lead, zinc and nickel on the LME, which is another indication of a tight market.