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Zinc
Outlook to 2013-14
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Rohan Kendall
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The substantial fall in zinc prices over the past year reflects market conditions of weak demand associated with the global economic downturn.

Zinc prices are projected to recover over the medium term to 2014. Zinc demand is projected to recover in line with the global economy and growth in supply is expected to be relatively weak because of mine closures, project delays and project abandonments in late 2008 and 2009.
Low prices throughout 2009 but expected to recover over the medium term
In 2008, spot zinc prices averaged US$1878 a tonne on the London Metal Exchange. Weak zinc demand is expected to persist throughout 2009, which should lead to an increase in zinc stockpiles and ensure prices remain low. For 2009 as a whole, zinc prices are forecast to average US$1285 a tonne, which is 32 per cent lower than the 2008 average.

The sharp decline in zinc prices has led to numerous mine closures, project delays and the abandonment of mine developments. Consequently, weak growth in global zinc production is forecast for the next two years. However, zinc demand is expected to begin recovering in 2010 consistent with a recovery in the global economy. As a result, zinc stocks are expected to decline and prices to increase over 2010 and 2011.

However, prices are not expected to increase to the same level as in 2006. There is substantial idle zinc capacity, which means supply should be able to respond and limit the price increases. It takes less time to restart a closed mine or refinery compared with greenfield and brownfield developments.

Over the medium term, zinc prices are expected to peak at around US$2100 a tonne (in 2009 dollars) in 2012 before settling back to US$1800 a tonne (in 2009 dollars) by 2014.
Consumption to fall in 2009…
World zinc consumption is estimated to have increased by around 2 per cent in 2008 to
11.6 million tonnes. In 2009, world zinc consumption is forecast to fall by 5 per cent to around 10.9 million tonnes. Approximately 70 per cent of zinc is consumed in the construction and motor vehicle manufacturing industries in the form of galvanised (zinc coated) steel. Global construction activity and motor vehicle demand have been severely affected by the global economic downturn, which underpins this forecast of falling consumption.

Developed economies, such as the United States, Japan and the European Union, have been most noticeably affected by the global economic downturn. Output of manufactured goods, including motor vehicles and appliances, which are zinc intensive, and construction activity are expected to decline in these economies during 2009. Consequently, zinc consumption is expected to fall substantially in these regions.

On the other hand, zinc consumption in emerging economies, particularly China and India, is forecast to rise in 2009. Supporting this growth will be increased government spending and an easing of monetary policy. For example, the Chinese Government announced a US$586 billion fiscal stimulus in November 2008 primarily aimed at infrastructure and earthquake reconstruction. It is expected the Chinese Government will announce further stimulus packages if China’s economic growth continues to slow. Zinc consumption in India is expected to grow because of ongoing investment aimed at improving India’s power generation and transport infrastructure.
…but increase as global economy recovers
The world economy is assumed to begin a gradual recovery in 2010, which should support growth of zinc demand. China and India are expected to underpin this recovery, while zinc consumption in developed economies is expected to remain subdued over an extended period.

Zinc consumption is expected to grow strongly in emerging economies, particularly China, over the outlook period. The long-term drivers of zinc consumption in developing countries such as industrialisation, urbanisation, low per capita rates of zinc consumption, rising incomes and favourable demographics, remain in place. In addition, manufacturing facilities have been increasingly relocating from developed countries in favour of developing countries where production costs are lower and end use markets are growing strongly.

Over the five years to 2014, world zinc consumption is projected to grow by around 2.2 per cent a year to 13.2 million tonnes.
Mine closures and project delays to limit supply growth
The fall in zinc prices during 2008 has led to closures of zinc production capacity and to delays and abandonment of development projects throughout the world. Consequently, zinc production is forecast to decline in the short term and projections of medium term production growth have been revised down. In 2009, world zinc production is forecast to fall by 4 per cent to 11.2 million tonnes. Over the outlook period, zinc production is forecast to grow by around 2 per cent a year to 13.3 million tonnes.

Zinc mine closures have been widespread with shutdowns occurring in both emerging and developed economies. Australia has been one of the most severely affected countries in terms of mine closures. As of January 2009, more than 400 000 tonnes of Australia’s zinc mine capacity had been closed.
Australian zinc production to fall
As a result of a significant number of mine closures, Australian zinc mine production is forecast to decline by around 10 per cent to 1.42 million tonnes in 2008-09 and a further 5 per cent to 1.35 million tonnes in 2009-10.

Over the medium term, Australia’s zinc mine production is projected to increase to around 1.52 million tonnes by 2013-14, however this would still be below 2007-08 production. Contributing to the weakness in production growth over the medium term are delays to project developments. In particular, OZ Minerals has indefinitely postponed the development of its Dugald River zinc mine (200 000 tonnes a year). This mine was originally scheduled to begin production in 2012. In addition, Kagara Zinc’s Mungana project (50 000 tonnes a year) and CBH Resources’ Rasp mine development (30 000 tonnes a year) have also been put on hold.

Xstrata and OZ Minerals have indicated that production could be cut at their McArthur River (150 000 tonnes a year) and Century (500 000 tonnes a year) zinc mines respectively. Forecasts for Australian production currently assume these two mines remain open. If these mines were to close, Australian zinc production, and exports, would be much lower than currently projected.
Australian export volumes and earnings to fall
The projected decline in zinc mine production over the outlook period is expected to lead to a decline in export volumes. In 2007-08, Australia exported 2.3 million tonnes of zinc concentrate. Consistent with production projections, exports of zinc concentrate are projected to fall to 2.1 million tonnes in 2008-09 and decline further to 1.7 million tonnes in 2009-10. Export volumes are projected to rise to 2.1 million tonnes by the end of the outlook period as mines reopen when prices recover. Exports of refined zinc are projected to remain reasonably stable at around 380 000 tonnes over the outlook period.

Australian zinc export earnings totalled $3.4 billion (in 2008-09 dollars) in 2007-08. Falling zinc prices and export volumes are expected to lead to a decline in export earnings to around $2.1 billion in 2008-09 and a further decline to $1.8 billion in 2009-10. A modest recovery in prices and export volumes is projected to lead to zinc export earnings increasing to $2.5 billion (in 2008-09 dollars) by the end of the outlook period.
World zinc mine closures
operation company country closure/
downsize 
2009 estimated
lost production
(‘000 tonnes)
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Lennard Shelf Teck Cominco / Xstrata Australia closure
75
Broken Hill Perilya Australia downsize
50
Golden Grove OZ Minerals Australia downsize
75
Endeavor CBH Resources Australia downsize
40
Mt Garnet Kagara Australia downsize
35
Hellyer Intec Australia closure
30
McArthur River Xstrata Australia downsize
32
Century OZ Minerals Australia downsize
20
Handlebar Hill Xstrata Australia closure
80
Balen smelter Nyrstar Belgium downsize
130
Perkoa AIM Resources Burkina Faso closure
50
Langlois and Myra Breakwater Resources Canada closure
115
Caribou and Restigouche Blue Note Mining Canada closure
55
Scotia Acadian Mining Canada downsize
17
Chisel North HudBay Minerals Canada closure
30
several zinc smelters Huludao Zinc China downsize
105
several zinc smelters Zhuzhou Smelter Group China downsize
20% of capacity
Kentau ShalkiyaZinc Kazhakstan closure
na
several zinc smelters Korea Zinc Korea downsize
45
Budel smelter Nyrstar Netherlands downsize
35
Rosaura Glencore Peru closure
30
Neves-Corvo and Aljustrel Lundin Mining Portugal closure
105
East Tennessee East Tennessee 
Zinc Company		 USA closure
70
Mid-Tennessee zinc  Strategic Resource
  mining complex    Acquisition USA closure
50
Pend Oreille Teck Cominco USA closure
40
Balmat mine and concentrator HudBay Minerals USA closure
30

Aluminium and alumina outlook
unit
2007
2008
2009
f
2010
z
2011
z
2012
z
2013
z
2014
z
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World
Production
– mine
kt
11 158
11 538
11 076
11 187
11 489
11 891
12 426
12 985
– refined
kt
11 353
11 723
11 219
11 331
11 728
12 256
12 770
13 281
Consumption
kt
11 317
11 555
10 943
11 304
11 767
12 285
12 752
13 160
Closing stocks
kt
500
668
944
972
933
903
922
1 043
– weeks consumption
wks
2.3
3.0
4.5
4.5
4.1
3.8
3.8
4.1
Price lme
– nominal
US$/t
3 243
1 878
1 285
1 518
2 145
2 238
2 165
2 033
USc/lb
147
85
58
69
97
101
98
92
– real a
US$/t
3 386
1 883
1 285
1 492
2 066
2 109
1 997
1 834
USc/lb
154
85
58
68
94
96
91
83
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2006-07
2007-08
2008-09
f
2009-10
z
2010-11
z
2011-12
z
2012-13
z
2013-14
z
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Australia
Mine output
kt
1 375
1 571
1 419
1 348
1 416
1 485
1 497
1 517
Exports
Ore and conc. b
kt
1 948
2 323
2 135
1 749
1 880
2 020
2 045
2 081
Refined
kt
374
411
404
381
383
382
378
384
Total value
– nominal
A$m
4 298
3 350
2 082
1 846
2 351
2 997
2 880
2 794
– real c
A$m
4 533
3 417
2 082
1 811
2 251
2 798
2 623
2 483
a In 2009 US dollars. b Quantities refer to gross weight of all ores and concentrates. c In 2008-09 Australian dollars. f ABAREforecast. z ABARE projection.
Sources:Australian Bureau of Statistics; International Lead Zinc Study group; World Bureau of Metal Statistics; ABARE.