Yes very annoying that these media companies are doing this..
I'll post a text version here...no other choice...
Glencore merger set to put shine on dull zinc
By Jack Farchy Consumer industries set to push for regulatory checks on deal
Zinc is a commodity that rarely makes headlines. Its use, galvanising steel, is unsexy. For years, its price has underperformed. But the proposed merger of Glencore and Xstrata has propelled the $30bn-a-year zinc market into the limelight.
The commodity offers one of the most striking insights into the powerful position the combined Glencore-Xstrata entity would hold in some markets.
If the deal goes ahead, it will create the world’s largest miner of zinc, the metal’s top trader, and one of the biggest zinc smelting companies. For example, it would control more than a third of European zinc smelting capacity.
The metal is also a potential hurdle for the $90bn merger, as consumers of zinc, used as a protective coating for steel products from car parts to roofing for buildings, are calling for regulators to scrutinise the deal, particularly in Europe where the combined group would be especially big.
Eurofer, a lobby group for the European steel industry, is planning to write to the European Commission to express concern about the merger. "It does look like the proposed merger will give the combined company an overwhelmingly large market share," says Gordon Moffat, head of Eurofer.
With almost 20 zinc mines and projects from Canada to Burkina Faso, Glencore and Xstrata would be by far the world's top zinc miner, producing about 11.5 per cent of global supply, according to Wood Mackenzie, a consultancy. Yet Duncan Hobbs, commodity analyst at Macquarie, says the influence and reach of the combined group "goes well beyond the size of their production".
First, zinc is not typically sold direct from mines to users; it must be smelted, often by different companies from those that mine the ore. The merged Glencore-Xstrata, however, would also be among the largest smelters of zinc, with 8 per cent of global output and the world's largest single smelter at San Juan de Nieva in northern Spain.
Moreover, Glencore's trading arm is an active buyer of mined and refined zinc from third parties. It holds minority stakes in Peru’s Volcan, the world’s seventh-largest zinc miner, and Nyrstar, the largest zinc smelter, which, according to a recent prospectus, sells "almost all of its commodity grade metal" to Glencore under a long-term agreement that was recently extended to 2018.
According to industry estimates and Financial Times calculations, the merged company would supply 16-18 per cent of each of the zinc ore and zinc metal markets. Even that may underestimate the significance of the group. Excluding domestic Chinese production, which most analysts consider a largely distinct market, the share would rise to about 25 per cent.
"As a single entity they are just too powerful," says a purchasing manager at a top European steelmaker.
The European Commission, which was instrumental in blocking the 2009 merger of Rio Tinto and BHP Billiton’s iron ore operations, has not yet decided whether to investigate the Glencore-Xstrata tie-up.
The Commission treated the two companies as a single entity when it approved Xstrata's acquisition of Canadian miner Falconbridge in 2006, meaning that technically a merger of Glencore and Xstrata would not trigger an investigation.
But the European zinc market has changed significantly since 2006. Then, Brussels noted that there was "a number of effective competitors" in Europe, naming Boliden, Umicore and Zinifex.
Since then, however, Umicore and Zinifex have spun off their zinc smelting operations into a new company that is now Brussels-listed Nyrstar.
Moreover, several other zinc smelters have closed, meaning that Glencore and Xstrata now control 35 per cent of European zinc smelting capacity. Add to that the metal which Glencore buys from Nyrstar and the combined group supplies more than half of Europe’s zinc, according to industry estimates.
While zinc prices are set globally on the London Metal Exchange, supply and demand in local markets can affect regional "premiums" – the amount a buyer is prepared to pay above the exchange price for physical delivery to a particular location. Traders and analysts say that Glencore already has significant influence over premiums in the European market.
The companies, which declined to comment, are confident of avoiding regulatory problems, believing that regulators should look at the market share of the combined group on a global basis, rather than focusing on the European market. Moreover, some observers believe there will be little change from the current situation if the merger goes through. "All the consumers I talk to treat Glencore and Xstrata as one company anyway," says Graham Deller, head of zinc research at CRU, a consultancy.
Regardless of whether or not zinc proves a stumbling block of the merger, one thing is certain: the metal is likely to garner more attention as the relatively obscure commodity becomes a major driver of profitability for one of the top-ten FTSE 100 blue-chip companies.
As Michael Morley, head of corporate development at Nyrstar, says: "Ultimately zinc has got to get a headline, and I think a merger like this puts it in the spotlight."
KZL Price at posting:
30.5¢ Sentiment: Buy Disclosure: Held
