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Apsara Maliyasena
World zinc spot prices averaged US$1362 a tonne in the first seven months of 2009, which is around 27 per cent lower than the average for 2008 of US$1878 a tonne. For the calendar year 2009, the spot price of zinc is forecast to average around US$1422 a tonne, which is an annual decline of around 24 per cent. The forecast lower average zinc price for 2009 is mainly the result of significantly weaker demand associated with the global economic downturn.
Despite production cuts over the past year, world zinc production is forecast to exceed consumption by around 169 000 tonnes for 2009 as a whole. As a result, zinc stocks are forecast to increase by 22 per cent, to around 4.5 weeks of consumption by the end of 2009.
Notwithstanding this projected increase in zinc stocks, zinc spot prices have recently been on the rise. During the June quarter 2009, zinc prices rose by 26 per cent and averaged US$1473 a tonne. This compares with average prices of US$1172 a tonne in the March quarter 2009 and US$1186 a tonne in the December quarter 2008. Zinc spot prices were around US$1900 a tonne in mid-September.
The recent significant increase in zinc prices is largely attributable to three supporting factors: production cuts that occurred in late 2008 and early 2009; a sharp rise in refined zinc imports into China; and increased investment demand because of an improved outlook for global economic activity.
After zinc prices began falling in October 2008, there was an increase in mine and smelter closures and cutbacks, particularly in Australia, Canada, China, Peru, Portugal and the United States. In the first six months of 2009, China imported around 480 000 tonnes of refined zinc, compared with 69 000 tonnes for the same period last year. Zinc prices have also been supported by an increase in investment demand, largely because of an improved outlook for world economic growth. Higher world economic growth will lead to increased zinc consumption and hence higher zinc prices on world markets.
Notwithstanding the recent price rise, world zinc consumption in aggregate has remained relatively weak. As a result, there has been an increase in zinc stocks held in London Metal Exchange (LME) warehouses. For example, in July 2009 LME closing zinc stocks stood at 408 000 tonnes, which was an increase of around 157 per cent from the same month a year earlier.
Zinc prices are forecast to average around US$1593 a tonne in 2010, which is an increase of
12 per cent from the forecast average for 2009. Although world economic activity is assumed to recover moderately during 2010, global zinc production is forecast to be marginally higher than zinc consumption, resulting in a small increase in total zinc stocks. However, because zinc consumption in 2010 is forecast to increase, stocks in terms of weeks of consumption are forecast to fall to 4.3 weeks.
The rise in world zinc prices in 2010 is forecast to be relatively limited because growth in zinc consumption is expected to be constrained by the assumed weak economic performance in many OECD countries. As prices recover further in the short term, there is also a distinct possibility some recently closed mines could re-open because of the improved outlook. Over the past two months, there have been reports about some idled zinc mine capacity in China coming back online. If significant amounts of currently idled mine and smelter capacity were to be brought back into production, there could be significant downward pressure on zinc prices in 2010.
In 2009, world refined zinc consumption is forecast to fall by around 7 per cent to 10.7 million tonnes. The forecast lower consumption in 2009 is mainly the result of weaker construction activity and lower motor vehicle production because of the global economic downturn. The construction and automotive sectors, which are both significant users of galvanised steel, accounted for around 70 per cent of global zinc consumption in 2008. The demand for zinc is highly responsive to activity in the construction and motor vehicle manufacturing industries.
Refined zinc consumption in developed economies such as the European Union, United States and Japan is forecast to decline in 2009. In the European Union, consumption of refined zinc was down 30 per cent year on year in the first six months of 2009. Weak construction activity, automobile sales and industrial production in these countries have lowered the demand for galvanised steel.
However, refined zinc consumption in China and India is forecast to increase in 2009. Underpinning the increase in refined zinc consumption in China is infrastructure investment and strong motor vehicle production. In the first six months of 2009, total vehicles sales in China increased year on year by 18 per cent. Zinc consumption in India is also expected to rise in 2009 as a result of increased infrastructure and urban construction.
Refined zinc demand could increase in late 2009 in response to the potential of restocking activity from consumers. For example, Canada’s Teck Resources recently stated that strengthening customer demand over the past several months has depleted its refined metal inventories. Orders for specific zinc products by steel mill customers are estimated to have increased since mid-2009.
Under the assumption of a modest improvement in world economic growth, world refined zinc consumption is forecast to increase by 6 per cent to 11.3 million tonnes in 2010. Increases in zinc consumption are forecast to occur in China and India, reflecting continued industrial modernisation and infrastructure investment. Consumption prospects are also expected to improve in many OECD economies later in the year, in line with an assumed improvement in economic activity.
As a result of production cuts implemented over the past 12 months, global refined zinc production is forecast to decline by around 6 per cent for 2009 as a whole, to 10.9 million tonnes. As a result of lower mine production, world refined zinc production is forecast to decline by around 6 per cent to 10.9 million tonnes in 2009.
In 2010, world zinc mine production is forecast to increase only slightly to 11 million tonnes. As discussed earlier, the forecast higher zinc prices in 2010 have the potential to induce producers to restart capacity. For example, Nyrstar resumed production at its Clarkesville and Budel plants to full capacity in July 2009. In late August 2009, Nyrstar further announced it would consider reopening its idled zinc operations in Balen in Belgium. Also, Horsehead Holding Corporation announced in July 2009 it would increase production at its Monaca zinc smelter (capacity 85 000 tonnes) in Pennsylvania, by restarting a fifth furnace.
World refined zinc production is forecast to increase by around 4 per cent to 11.3 million tonnes in 2010. A downside risk to this forecast increase is the weak demand, and hence prices, for sulphuric acid. Zinc smelters produce sulphuric acid as a by-product. If continued, lower prices for sulphuric acid have the potential to adversely affect the profitability of zinc refineries.
Mainly as a result of mine closures, Australian zinc mine production is estimated to have declined by 10 per cent to around 1.41 million tonnes in 2008-09. Closures in the year included Teck Resources’ Lennard Shelf mine (capacity 70 000 tonnes) in Western Australia and Intec’s Hellyer mine (capacity 30 000 tonnes) in Tasmania. Partly offsetting the effect of these closures were increases in production from Xstrata’s Mt Isa and McArthur River mines, Jabiru Metals’ Jaguar mine, MMG’s Rosebery mine and Terramin’s Angas mine.
In 2009-10, Australia’s zinc mine production is forecast to decline by a further 5 per cent to 1.35 million tonnes, as the full effect of production cuts and closures are realised. Zinc production at the Golden Grove mine is expected to fall significantly, in line with previously announced plans to switch to copper production. Also contributing to the forecast lower production in 2009-10 are projects being placed on hold, including the Mungana project (capacity of 50 000 tonnes) and the Rasp mine development (capacity of 30 000 tonnes).
Australian production of refined zinc was around 506 000 tonnes in 2008-09. Output of refined zinc in Australia is forecast to decline slightly to 505 000 tonnes in 2009-10, reflecting the forecast lower mine production.
Australian exports of zinc ores and concentrates fell by 9 per cent in 2008-09 to around 2.1 million tonnes, while refined zinc exports increased to 451 000 tonnes. In line with forecast lower production, exports of ores and concentrates in 2009-10 are forecast to decline by 19 per cent to 1.7 million tonnes. Exports of refined zinc are forecast to fall by 6 per cent to around 425 000 tonnes in 2009-10.
In 2008-09, lower export volumes and world prices resulted in the total value of Australian zinc exports declining by 45 per cent to $1.9 billion. In 2009-10, the total value of zinc exports is forecast to be around $1.8 billion, as the combined effect of lower export volumes and an assumed higher Australian exchange rate is expected to more than offset the effect of higher forecast world prices.
Zinc outlook |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
2008 |
2009 |
f |
2010 |
f |
% change |
|||||
| World | ||||||||||
| Production | kt |
11 667 |
10 909 |
11 345 |
4.0 |
|||||
| Consumption | kt |
11 487 |
10 740 |
11 331 |
5.5 |
|||||
| Closing stocks | kt |
764 |
932 |
946 |
1.5 |
|||||
| – weeks consumption | 3.5 |
4.5 |
4.3 |
– 4.4 |
||||||
| Price | US$/t |
1 878 |
1 422 |
1 593 |
12.0 |
|||||
USc/lb |
85.2 |
64.5 |
72.3 |
12.1 |
||||||
2007-08 |
2008-09 |
s |
2009-10 |
f |
||||||
| Australia | ||||||||||
| Mine output | kt |
1 571 |
1 411 |
1 347 |
– 4.5 |
|||||
| Refined output | kt |
507 |
506 |
505 |
– 0.2 |
|||||
| Exports | ||||||||||
| – ores and concentrates | kt |
2 323 |
2 098 |
1 694 |
– 19.3 |
|||||
| – refined | kt |
411 |
451 |
425 |
– 5.8 |
|||||
| – total value | A$m |
3 350 |
1 853 |
1 755 |
– 5.3 |
|||||