Zinc Play, page-5

WSJAsia




Bit of the bigger picture

Article in Wall Street Journal, 2 days ago.


"Zinc Prices Surge as Supplies Shrink



The metal on Friday traded at its highest level in more than a year as mine closures pressure supplies.
By Tatyana Shumsky
Zinc is trading at its highest price in more than a year amid diminishing supplies of the metal.
Zinc for delivery in three months rose $24, or 1.1%, to $2,177 a metric ton Friday on the London Metal Exchange, the highest level since Feb. 14, 2013. Zinc prices gained 4.3% for the week.
The metal is primarily used to galvanize steel to make rust-resistant products. Zinc supplies are dwindling as construction demand is ramping up globally while mines shut down.
The amount of zinc held in the LME’s global warehouse network fell to a 3½-year low of 674,375 metric tons on Thursday. While the stockpiles increased by 1,900 tons on Friday, the amount of zinc in LME storage is still down 28% this year.
“That decline in stocks is helping to drive zinc higher, no question about it,” said Michael Turek, senior director of metals with Newedge in New York. “In the meantime, demand is quite good in the U.S., and Europe isn’t the basket case we expected it to be.”
Global demand for zinc is likely to grow 5.7% this year to 13.85 million metric tons and expand a further 5.2% in 2015, according to Morgan Stanley analysts.
Zinc traders have been tapping the LME’s stockpiles as they grapple with reduced output from the world’s mines.
Last year, Glencore PLC shut down the Brunswick and Perseverance mines that produced zinc and lead in eastern Canada. MMG Ltd.’s Century mine in Australia, the world’s third-largest open-pit lead-and-zinc mine, is expected to be closed by the end of 2015, as is Vedanta Resources PLC’s Lisheen mine in Ireland. Lead and zinc are often found together, and the deposits sometimes contain other metals, such as silver or gold.
Stephen Briggs, a metals analyst with BNP Paribas, expects the zinc market to lose roughly one million metric tons of supply as a result of the four closures.
At the same time, mining companies have been slow to open new zinc mines. Supply of the metal has only recently tipped into a deficit, after several years of overproduction, and current prices are less than half of the highs seen in 2006, when zinc traded above $4,500 a ton.
“You have a lot of closures of these fairly large, lead-zinc mines globally, [but there hasn't] really been a new lead mine in forever,” said Daniel Belchers, commodities-fund manager at Threadneedle Investments, which has $1.3 billion in commodities investments.
Mr. Briggs predicts global zinc output will fall 13% this year to 1.325 million tons, leading to a supply shortfall of 250,000 metric tons, and a further 27% drop in supply by 2015 to create a shortfall of 200,000 metric tons.
Lower precious-metals prices have contributed to the decline in zinc production. Some zinc mines in China also produced gold or silver, and companies used profits from those metals to stretch the useful life of the mines, Mr. Belchers said. China is the world’s largest zinc producer at 35% of the world’s supply, followed by Australia at 11% and Peru at 10%, according to data from the International Lead Zinc Study Group.
“But now, these mines are shutting down, [precious metals] prices are going down…so you’re not seeing surprising production numbers out of China,” Mr. Belchers said."