COLUMN-Bulls lose patience with zinc’s slow-burn story – by Andy Home (Reuters U.S. – May 7, 2014)

Andy Home is a Reuters columnist. The opinions expressed are his own.

May 7 (Reuters) – Markets are fickle things. A few months ago zinc was the only game in town among the base metals traded on the London Metal Exchange (LME). The market was chasing a bullish story of pending supply shortfall as some of the world’s largest mines reach the end of their natural lives.

Now, however, metal bulls are shunning the zinc market, turning their attentions to nickel with its equally compelling story-line of mine shortfall after the January imposition of a ban on nickel ore exports by Indonesia.

LME three-month nickel has gained 30 percent, while three-month zinc has fallen by 2 percent since the start of this year. So what has changed to explain zinc’s fall from bullish favour? Nothing, according to Canadian producer Teck Resources , which in its Q1 2014 results reiterated the bull argument for zinc.

“We believe the outlook for zinc is the most favourable of the base metals. With recent and expected closures of a number of zinc mines, we believe that approximately 1.5 million tonnes of current zinc mine production will be closed by the end of 2016 in a 13 million tonne per year market.”

It’s been a long time coming as producers eked the last out of their aging properties but those mine closures are now starting to happen.

In Canada Glencore’s Brunswick and Perseverance mines with combined output of 316,000 tonnes in 2012 have gone.

In Ireland Galmoy has also gone and Lisheen will be next, wiping another combined 350,000 tonnes off the global mine supply chain.

In Australia the Century mine is totemic of the zinc story. What is one of the world’s largest zinc mines will close around the middle of next year, which is actually a little earlier than previously expected.

The underlying bull story, in other words, remains on track.


The issue, though, is one of timing. Right now, there is no sign of tension in the zinc concentrates market.

Indeed, this year’s benchmark treatment terms marked a shift in favour of smelters over miners, suggesting improved rather than impaired availability.

At a headline level the fee charged by smelters for transforming mine concentrate into metal rose to $223.50 per tonne from $210.50, according to Belgium’s Nyrstar, one of the largest refined zinc producers outside of China.

Factoring in the esoterica of escalators and de-escalators, the zinc market’s convoluted price participation formula, this year’s terms represented a 6-percent improvement on 2013, Nyrstar said.

Moreover, it told analysts on its Q1 conference call that it has achieved better terms still on “significant quantities of zinc concentrates.”

The zinc bull story, in other words, remains a slow fuse affair, in contrast with nickel, where the impact of the Indonesian ban is thought to be already impacting run-rates in China’s giant nickel pig iron sector.

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