Zinc’s Supply & Demand Equation Not Simple Math

May 06, 2015

 

Decreasing Supply and Increasing Demand?

While mine production in Australia, Canada, India, Kazakhstan, Namibia (at Vedanta’s Skorpion mine) and Peru decreased in 2014, this decrease was more than offset by the increase in production in China. The case was the same with China’s refined zinc metal output, which more than offset reductions in such output elsewhere around the globe.

 

Global Refined Zinc Production – 2010/15 ('000 Tonnes)

Global Refined Zinc Production

Source: International Lead and Zinc Study Group

 

Going forward, however, it is far from certain that, after this year, global production growth will offset consumption growth.

Indeed, according to a number of projections, it will not. As they have been over a number of years now, mines continue either to close or reduce output. From 2016 on out, sufficient new production capacity to offset the loss of output from these seems unlikely for some years. And with what new projects there are in the pipeline, there is also concern that their deposits may consist of lower-grade ores.

Given the level of zinc prices over the last several years, there has been little incentive, or sense of urgency, for investment in new mining capacity.

The forthcoming projected closure this year of MMG Limited’s (MMG) Century mine in Australia perhaps illustrates this. Currently the world’s third largest, with an annual production capacity of some 500,000 tonnes, the zinc mine accounts for around 4 percent of global zinc output. However, it appears that, even now, despite much effort, MMG remains no closer to finding a replacement for the mine.

And in a recent report, Reuters noted that, having put things on hold back in 2013, the company “plans to decide by September how it plans to develop its Dugald River zinc project, key to replacing output from its Century mine.”

Century is, however, not the only large mine slated to close soon. Vedanta’s Lisheen mine, Europe’s second-largest zinc mine, is also expected to close soon (October of this year) with, according to Bloomberg Intelligence, amounting to a cut in supply of 175,000 tons.

Add this lost production to 335,000 tons eliminated when Canada’s Brunswick and Perseverance mines were both closed in 2013 and that’s quite a significant amount of production. On top of these eliminations, Vedanta’s Skorpion mine in Namibia is reaching the end of its life, and the next several years could, in addition, see reduced production not only at both Red Dog and Rampura-Agucha, but also perhaps at Mount Isa.

Indeed, according to Morgan Stanley, by 2017, annual mined supply will have had 1.2 million tons taken out of production.

On the other hand, who really knows just how much and for how long producers will attempt to eke out production from lower-grade ore or even ostensibly tapped-out resources.

 

 

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