Newsletter Reviews

Zinc Glimmers While Prices Slide

Zinc Glimmers While Prices Slide

Author: James Wellstead
Posted: February 20, 2012

Exclusive to Zinc Investing NewsZinc is enjoying an unusual share of market attention as a number of events in recent weeks have brought the world’s fourth most commonly used metal into the spotlight.

While much of this attention is due to the proposed merger between zinc mining and commodity giants Glencore (LSE:GLEN) and Xstrata (LSE:XTA), re-emerging concerns about growing refined zinc stockpiles and untimely mine production numbers have also drawn negative attention.

Nevertheless, Scotiabank Vice President and Commodity Market Specialist Patricia Mohr maintained at the 100th anniversary of the Association for Mineral Exploration British Columbia that zinc is “one to watch” in 2012.

Oversupply concerns
After losing a quarter of its value in 2011 on spot markets at the London Metal Exchange, zinc began 2012 strongly, with prices rebounding on positive Chinese and American macroeconomic fundamentals, and expectations of an impending near-term mine supply crunch.

But recent concerns related to the timing of that supply imbalance have left markets down over the last three weeks, settling around US $2,016/tonne on cash settlements and US $2,033/tonne for three month contracts at midday trading today, according to the London Metal Exchange.

Concerns over the timing of supply increases appear to be central amongst traders’ concerns, with rumors of oversupply set to flood the market later this year.

“There are not a lot of reasons why zinc should go higher,” Bart Melek, head of commodity strategy at TD Securities, said in an interview. “It’s a surplus, and demand is being outpaced by supply growth. We’re looking for a bit of a correction.”

One current indicator of where mined zinc supply levels will go this year is the negotiations between miners and refiners for benchmark 2012 treatment and refinement charge (TC/RC) rates. TC/RC rates are negotiated annually and tend to mirror the trends in supply: a fall in zinc supply will lead to a fall in TC/RC rates.

Data from the International Lead and Zinc Study Group also show a consistent increase of global zinc mine supply in the last quarter of 2011, while metal production and consumption have levelled off.

These numbers are the result of a number of regional dynamics. China experienced 20 percent growth in mined zinc, reaching 4,458,000 tonnes of concentrate, while refined zinc also grew last year by 3.8 percent to reach 5,344,000 tonnes, according to the National Bureau of Statistics.

Full Article