Zinc

Apsara Maliyasena

Zinc prices to decline markedly in 2009

In the first five months of 2009, world spot zinc prices averaged US$1223 a tonne on the London Metal Exchange, around 35 per cent lower than the 2008 average zinc price of US$1878 a tonne. For 2009 as a whole, the spot price of zinc is forecast to average around US$1272 a tonne, 32 per cent lower than the average for 2008. The lower price forecast for 2009 mainly reflects weak demand associated with the global economic downturn.

In recent months, zinc prices have increased significantly, although they remain significantly lower than the same period a year earlier. In early June 2009, zinc prices had improved by 36 per cent from December 2008. However, there is currently a significant amount of idled zinc mine and smelter capacity, following closures since mid-2008. The potential restart of this spare mine and smelter capacity could limit any significant price increases in the short term.

For 2009 as a whole, zinc production is forecast to exceed consumption by around 226 000 tonnes, leading to zinc stocks increasing by 36 per cent, to 4.7 weeks of consumption.

Zinc consumption is expected to begin recovering in early 2010, consistent with an assumed recovery in the global economy. As a result, prices are expected to average higher and stocks to decline in 2010. Zinc prices are forecast to average around US$1518 a tonne in 2010, an increase of 19 per cent from the forecast average for 2009.

World zinc consumption to fall in 2009…

World refined zinc consumption increased by 1 per cent to 11.5 million tonnes in 2008, but is forecast to fall by around 5 per cent to 10.9 million tonnes in 2009. Underpinning the forecast lower consumption in 2009 are the negative effects on construction activity and motor vehicle production of the current global economic downturn. More than two-thirds of zinc consumption is used in the form of galvanised (zinc coated) steel to prevent corrosion. Galvanised steel is used for many products such as roofing, gutters, consumer appliances and automotive body parts. Therefore, the demand for zinc is highly responsive to a weakening in construction activity and motor vehicle production.

World zinc mine production cuts
operation	company	country	closure /downsize	approx output loss 2009 (‘000 tonnes)
Lennard Shelf	Teck Resources / Xstrata	Australia	closure	75
Hellyer	Intec	Australia	closure	30
McArthur River	Xstrata	Australia	downsize	32
Rasp	CBH Resources	Australia	closure	35
Potosi	Perilya	Australia	closure	55
Broken Hill	Perilya	Australia	downsize	50
Golden Grove	OZ Minerals	Australia	downsize	75
Handlebar Hill	Xstrata	Australia	closure	45
Endeavor	CBH Resources	Australia	downsize	16
Mt Garnet	Kagara	Australia	downsize	35
Century	OZ Minerals	Australia	downsize	20
Perkoa	AIM Resources	Burkina Faso	closure	50
Langlois and    Myra Falls	Breakwater Resources	Canada	closure	115
Caribou and    Restigouche	Blue Note Mining	Canada	closure	50
Chisel North	HudBay Minerals	Canada	closure	24
Galmoy	Lundin Mining	Ireland	closure	47
Kentau	ShalkiyaZinc	Kazakhstan	closure	na
Rosaura	Glencore	Peru	closure	30
Iscaycruz	Glencore	Peru	closure	145
Neves-Corvo and    Aljustrel	Lundin Mining	Portugal	closure	105
Gordonsville	Strategic Resources Acquisition	United States	closure	54
Pend Oreille	Teck Resources	United States	closure	18
East Tennessee	East Tennessee Zinc Company	United States	closure	70
Mid-Tennessee    zinc mining complex	Strategic Resource Acquisition	United States	closure	50
Balmat mine and    concentrator	HudBay Minerals	United States	closure	30

Refined zinc consumption in developed economies such as the European Union, the United States and Japan is forecast to decrease in 2009. Declining construction activity, automobile sales and industrial production in these economies have lowered the demand for galvanised steel. For example, in Japan, zinc consumption is forecast to be less than 500 000 tonnes in 2009, the lowest since 1967.

In comparison, refined zinc consumption in China and India is forecast to increase in 2009. The increase in China is supported by sharply higher public sector spending on infrastructure and stock rebuilding by some provincial governments. Zinc consumption in India is also expected to rise in 2009 as a result of increased demand for infrastructure development and construction. The growing demand for motor vehicles in India has emerged as an important driver of zinc consumption in the past few years.

…before picking up in 2010

Under the assumption of strengthening world economic growth in 2010, world refined zinc consumption is forecast to increase, rising by around 3 per cent to 11.3 million tonnes. The majority of this forecast increase is expected to occur in China and India. Economic growth in OECD economies is also assumed to recover modestly in 2010, which should support a corresponding pick up in OECD zinc consumption.

Significant cuts in world production in 2010

Global zinc mine production is forecast to decline by 4 per cent in 2009 to 11.3 million tonnes. The forecast decline in production is expected to limit the size of inventory build-up. Reflecting the recent downward price movements, there have been a number of closures of existing mines and new projects being placed on hold. In May 2009, Lundin Mining announced it will close its Galmoy zinc-lead mine in Ireland earlier than planned because of low zinc prices. Glencore’s Iscaycruz lead and zinc mine in Peru was put on care and maintenance in early March. As of April 2009, more than 400 000 tonnes of Australia’s zinc mine capacity had been closed.

As a result of lower mine production and lower revenues at refineries, world refined zinc production is also forecast to decline in 2009, with significant reductions in Belgian, Canadian, German, and Dutch refineries. Nyrstar, the world’s largest producer of zinc metal, has cut refined zinc production by 30 per cent in the first quarter of this year. Weak demand for sulphuric acid has also affected zinc smelters since late 2008. Zinc smelters produce sulphuric acid as a by-product.

World refined zinc production cuts
operation	company	country	closure /downsize	approx output loss 2009 (‘000 tonnes)
Balen smelter	Nyrstar	Belgium	downsize	130
Trail	Teck Resources	Canada	downsize	30
Kidd Creek refinery	Xstrata	Canada	downsize	20
several zinc smelters	Zhuzhou Smelter Group	China	downsize	60
several zinc smelters	Huludao Zinc	China	downsize	100
Kokkola	Boliden	Finland	downsize	30
Datteln refinery	Ruhr-Zinc	Germany	closure	140
Balkhash	Kazakhmys	Kazakhstan	closure	48
several zinc smelters	Korea Zinc	Korea, Rep. of	downsize	45
Budel smelter	Nyrstar	Netherlands	downsize	35
Odda	Boliden	Norway	downsize	30
Copsa Mica	Mytilineos	Romania	closure	60
Chelyabinsk	Chelyabinsk Zinc	Russian Federation	downsize	45
Clarksville	Nyrstar	United States	downsize	25
Monaca	Horsehead Industries	United States	downsize	20

Production resuming in 2010

In 2010, world zinc mine production is forecast to increase slightly to 11.4 million tonnes, in response to recovering world demand. Forecast higher zinc prices and falling stocks in 2010 are expected to encourage some mine and refined producers to resume production or return to full capacity. For 2010 as a whole, world output of refined zinc is also forecast to increase slightly to 11.3 million tonnes.

Australian zinc production to decline in 2008-09

Australian zinc mine production is estimated to decline by 12 per cent to around 1.38 million tonnes in 2008-09. This forecast decline partly reflects significant decreases in zinc production at the Century and Mount Garnet mines in Queensland, because of flooding. Zinc production at the Golden Grove mine in Western Australia fell significantly, in line with previously announced plans to increase copper production at the mine. There was also reduced zinc output at Xstrata’s Mount Isa operations because of lower mined grades and higher input costs.

In 2009-10, Australia’s zinc mine production is forecast to decrease by a further 3 per cent to 1.35 million tonnes. The sharply lower zinc prices have resulted in a number of producers cutting production or placing mines on care and maintenance.

Australia has the capacity to produce around 500 000 tonnes of refined zinc annually. With no additions scheduled to Australia’s zinc refining capacity, refined zinc production is forecast to remain around 500 000 tonnes in 2008-09. Refined zinc production is forecast to decrease slightly to 476 000 tonnes in 2009-10, reflecting the forecast lower mine production.

Australian export earnings to fall in 2008-09

Exports of zinc ores and concentrates are projected to decrease by 15 per cent in 2008-09 to around 2.0 million tonnes, while refined zinc exports are estimated to increase to 415 000 tonnes. In line with lower production, exports of ores and concentrates and refined zinc are forecast to decrease by 12 per cent to 1.8 million tonnes and by 5 per cent to 396 000 tonnes, respectively in 2009-10.

In 2008-09, lower export volumes and world prices are forecast to result in the total value of Australian zinc exports declining by 44 per cent to $1.9 billion. In 2009-10, the total value of zinc exports is forecast to be around $1.9 billion, as lower export volumes are expected to be offset by the effect of higher forecast world zinc prices.

Zinc outlook
			2008	2009	f	2010	f	% change
World
Production		kt	11 683	11 149		11 261		1.0
Consumption		kt	11 468	10 923		11 283		3.3
Closing stocks		kt	764	990		968		– 2.2
– weeks consumption			3.5	4.7		4.5		– 4.3
Price		US$/t	1 878	1 272		1 518		19.3
		USc/lb	85.2	57.7		68.8		19.2
			2007-08	2008-09	s	2009-10	f
Australia
Mine output		kt	1 571	1 381		1 346		– 2.5
Refined output		kt	507	495		476		– 3.8
Exports
– ores and concentrates		kt	2 323	1 979		1 750		– 11.6
– refined		kt	411	415		396		– 4.6
– total value		A$m	3 350	1 874		1 881		0.4