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| Zinc | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rohan Kendall |
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| Prices declining as supply increases… | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| World spot zinc prices averaged US$2183 a tonne in the first eight months of 2008, 33 per cent lower than the average for 2007 as a whole (US$3243 a tonne). The spot price of zinc is forecast to average around US$2000 a tonne on the London Metal Exchange in 2008. The forecast lower average zinc price is mainly the result of increasing world supply associated with the start up of new mines and refineries. In 2009, zinc prices are forecast to average US$1833, down a further 9 per cent from the average in 2008. Rising zinc prices over the past few years have encouraged significant investment in mines and refineries. World zinc production is forecast to increase by 4.2 per cent in 2008 to 11.8 million tonnes and by a further 4.0 per cent in 2009 to 12.3 million tonnes. The largest recently commissioned mine is Apex Silver’s San Cristobal operation in Bolivia (annual capacity of 235 000 tonnes), which began production in August 2007 and will ramp up output during the remainder of 2008 and 2009. Other notable recent mine openings which will add to production as they continue to increase output include Minera Milpo’s Cerro Lindo mine (110 000 tonnes a year) in Peru which began producing in July 2007 and Xstrata’s Perseverance mine (115 000 tonnes a year) in Canada which was commissioned in July 2008. Growth in world zinc mine supply is forecast to continue in 2009 with the expected start up of Goldcorp’s Penasquito mine in Mexico (189 000 tonnes a year), an expansion of Xstrata’s Mt Isa zinc–lead concentrator (an additional 150 000 tonnes of zinc a year) which is scheduled for completion in late 2008, and the possible start up of Herald Resources’ Dairi mine (115 000 tonnes a year) in Indonesia. In addition, there has been significant investment in zinc mining in China. In its latest report containing forecasts released in April 2008, the International Lead and Zinc Study Group forecast China’s zinc mine output to rise by around 10 per cent in 2008 with a similar increase in 2009. There are several new and expanded zinc refineries which will contribute to higher world zinc production in 2008 and 2009. These include Votorantim’s Cajamarquilla refinery in Peru which increased capacity by 30 000 tonnes a year in late 2007 and is planning to increase capacity by a further 180 000 tonnes over the next two years. Hindustan Zinc completed a 170 000 tonne expansion of its Chanderiya refinery in India in late 2007 and Nonfemet is expected to commission its 70 000 tonne a year Shooguan zinc refinery in China during the remainder of 2008. Not all of this additional capacity will translate into increased production before the end of 2009. New operations require time to reach full capacity as processes are fine-tuned to optimise performance. However, it does indicate substantial production increases are likely over the next few years. |
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| …and demand weakens in developed economies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Zinc consumption is forecast to increase by 3.0 per cent to 11.7 million tonnes in 2008 and a further 4.5 per cent to 12.2 million tonnes in 2009. The majority of this increase is being driven by rising consumption in developing countries while consumption growth in OECD economies is expected to be flat. Consumption growth in the United States and Europe is forecast to be flat in 2008 and 2009 because tightening credit market conditions have reduced construction activity. Approximately 70 per cent of zinc consumption occurs in construction and automotive industries in the form of galvanised (zinc coated) steel or other components such as diecast parts. Zinc is also widely used in manufacturing industries such as in the production of household appliances. Production of these products is declining in the United States and Europe because of weakening consumer spending and greater import competition from developing economies. Increased competition from imports is expected to place further downward pressure on US manufacturing activity, which in turn can be expected to reduce zinc demand in that country. Zinc consumption in China, India and Indonesia is forecast to increase by an average of 10 per cent, 6.5 per cent and 10 per cent a year, respectively, in 2008 and 2009. Underpinning this growth is investment in infrastructure projects, such as roads, railways, ports and power generation. In addition, strong growth in manufacturing output, such as motor vehicle production, is expected to continue in these countries. |
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| Mine closures and low stocks to support prices in 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The falling zinc price has led to several mines closing or reducing output. In Australia, Teck Cominco closed the Lennard Shelf mine in Western Australia (capacity of 80 000 tonnes a year) in early August 2008 because falling prices, rising costs and lower than planned production made the mine uneconomic. Intec suspended production at its Hellyer zinc operation (32 000 tonnes a year) in September. Intec also cited falling prices and rising costs as reasons for the shutdown. Perilya has announced it will downsize its Broken Hill operation to produce 55 000 tonnes of zinc a year (91 000 tonnes in 2007-08). CBH Resources has also decided to reduce output at the Endeavor mine in New South Wales to around 55 000 tonnes in 2008-09 (annual capacity of around 70 000 tonnes). Elsewhere, Lundin Mining is reviewing operations at the Aljustrel mine in Portugal (capacity of 80 000 tonnes a year) which is in ramp up phase. The Aljustrel mine was expected to produce 51 000 tonnes of zinc in 2008 but is now forecast to produce only 30 000 tonnes. A decision on the mine’s future is expected in late September. Aim Resources has suspended the development of its Perkoa Zinc Project in Burkina Faso (capacity of 68 000 tonnes a year) which was under construction and scheduled to commence exports in 2009. Hudson Bay Minerals has also announced the closure of the Balmat mine (production of 22 000 tonnes in 2007) in the United States. All of these mines are high-cost operations deemed unviable by their respective owners at current zinc prices. |
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| Zinc stocks | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| With the falling zinc price causing mine closures and zinc stocks low by historical standards, the potential for further falls in prices is limited. For 2009, zinc production is forecast to exceed consumption by around 80 000 tonnes leading to a further increase in zinc stocks to around three weeks of consumption. However, further mine closures or disruptions could erode this production surplus. In 2009, zinc prices are forecast to average US$1833 a tonne, down a further 9 per cent relative to the 2008 average spot price. However, spot zinc prices are forecast to rise gradually (by 4 per cent) throughout 2009, relative to current levels. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Strong growth in Australian production in 2007-08… | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian mine output increased by almost 200 000 tonnes (14 per cent) in 2007-08 to 1.57 million tonnes. The largest contributor to this increase was Perilya’s Beltana mine which operated for a period of 12 months to take advantage of high zinc prices. The mine produced 94 000 tonnes of zinc in the first three-quarters of 2007-08 and has now ceased operations. Significant increases to production also occurred at Century and Cannington mines in Queensland during 2007-08. The start up of Jabiru Metals’ Jaguar mine (40 000 tonnes a year capacity) also contributed to higher production. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| …but Australian production forecast to decline in 2008–09 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Australian zinc mine production is forecast to decline by 5 per cent to 1.49 million tonnes in 2008-09. Higher output is expected from the start up of Terramin’s Angas zinc mine in July (60 000 tonnes a year) and stage 2 of Xstrata’s Mt Isa zinc concentrator expansion in late 2008 (additional 150 000 tonnes). However, the closure of Teck Cominco’s Lennard Shelf mine, Intec’s Hellyer zinc operation, and Perilya’s Beltana mine, combined with reduced output from CBH Resources’ Endeavor mine and Perilya’s Broken Hill operation because of falling zinc prices, are expected to more than offset increased production from new operations. In addition, the falling zinc price provides an incentive for polymetallic operations to target production of other metals, such as copper, at the expense of zinc. For example, OZ Minerals intends to change its mine sequencing at Golden Grove in 2009 to reduce zinc production by 50 000 tonnes and to increase copper production by 14 000 tonnes. Australia has the capacity to produce around 500 000 tonnes of refined zinc annually. With no addition scheduled to Australia’s zinc refining capacity, it is expected refined zinc production will remain around 500 000 tonnes during 2008-09. |
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| Australian export earnings to fall | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In 2007-08, the impact of lower zinc prices and the stronger Australian dollar on export returns more than offset the effect of higher volumes shipped, causing the value of Australian zinc exports to decline by 22 per cent to $3.4 billion. In 2008-09, a decline in production is expected to lead to a fall in export volumes. Lower export volumes combined with lower zinc prices, are forecast to result in export earnings declining by a further 35 per cent to $2.2 billion. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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