Zinc Deficiency Gives Investors a Jolt – by Tatyana Shumsky (Wall Street Journal – September 8, 2014)


Prices for the Metal Have Soared to 3-Year Highs

The world is running low on zinc, sending some investors scurrying to buy mining-company shares and forcing the U.S. Mint to redouble cost-cutting efforts in search of a cheaper penny.

Prices for the metal have soared to three-year highs. Investors are betting prices will continue to climb as some of the world’s largest zinc mines run dry just as demand is ramping up.

Zinc is used in everything from steel coatings to car tires to sunscreen, and the metal has few substitutes. The U.S. Mint reduced manufacturing costs to offset higher prices for zinc, which makes up 97.5% of every penny. However, steelmakers, which buy about half the world’s zinc, are in a tougher bind. Zinc is one of several rust-resistant metals vital to the steelmaking process where costs have soared this year.

Zinc production is expected to fall short of demand this year for the first time since 2007, according to Goldman Sachs. Several large, aging mines are scheduled to close next year, and miners need higher prices to justify the cost of finding and developing new sources of metal. Miners may not produce enough zinc to meet the needs of steel companies and coin makers until 2018, analysts say. Meantime, a rebound in the U.S. property market and soaring global auto sales are creating new demand for galvanized steel.

Zinc for delivery in three months ended down slightly at $2,390 a metric ton on the London Metal Exchange, just below a three-year high. Futures are up 15% this year. BNP Paribas sees prices averaging $2,550 next year.

“There are a relatively small number of large zinc mines that are happening to be reaching the end of their useful lives,” said Stephen Briggs, a metals strategist at the bank. “While there are mines to replace them, they’re not that many and they’re not that big…we’re reaching the tipping point.”

Next year, metal companies are expected to close two mines equal to 7% of global production. Replacing that supply won’t be easy. One of the facilities expected to shut down, an Australian mine called Century, produces 500,000 tons of zinc a year, equal to about five new mines, Mr. Briggs said.

Zinc users are drawing on stockpiles of the metal to make up for production shortfalls. Supplies of the metal in LME-licensed warehouses fell to a 3.5-year low in July, and are down 21% this year. The warehouses contain enough zinc to meet 19 days of demand, down from 24 days at the start of the year.

“The recent zinc rally has really been driven by the fact that inventories have been falling much faster than people have been expecting,” said Catherine Raw, a commodities portfolio manager for BlackRock Inc.

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