This is why we need to hold the Chairman and Board accountable tomorrow. The merger is killing OXR holders and it might continue:
Analysts project 30% crash in spot zinc prices
by Tom Stundza -- Purchasing, 7/16/2008 11:59:00 AM
Too much zinc: In a nutshell, that explains the nosedive to an average $1.03/lb at midyear from the 2007 average of $1.51 for the alloying, coating and plating metal. Too many zinc mining and smelting operations worldwide ¡°have caused the supply pipeline for zinc to be more than plentiful,¡± says analyst Gayle Berry at Barclays Capital Research in London. The International Lead Zinc Study Group projects a zinc surplus this year of 215,000 metric tons.
With June¡¯s U.S. zinc price at 90�0„4, the analysts see $1.05 as the probable full-year average for 2008. The forecast average for 2009 also is $1.05 because analysts such as Bart Melek at BMO Capital Markets in Toronto sees no chance demand will outpace supply anytime soon. Another Toronto-based mining analyst, Kerry Smith at Haywood Securities, says production is fragmented among a large number of companies, with the biggest, Xstrata at 800,000 metric tons/year, controlling only 7% of supply. Even this year¡¯s merger of Zinifex with Oxiana that created OZ Minerals only gives the Melbourne firm control of 6% of world supply.
In a recent interview with Platts Metals Daily.com, Smith says that ¡°you never see much producer discipline in the zinc market. If prices come down and a mine starts losing money, you don¡¯t often see it shutting down production because nobody else follows suit.¡± What¡¯s more, a company with a profit-draining mine still faces costs associated with a shutdown, such as holding costs, environmental expenses and worker severance pay. ¡°So even if the mine is losing a little money, it¡¯s sometimes better to keep it operating than to shut down due to these costs,¡± Smith adds.
Recently, 29 small to medium-size Chinese firms with total zinc smelting capacity of around 900,000 metric tons/year (accounting for 20% of total Chinese zinc smelting capacity) met in Shanghai to discuss cutting production by 10% due to tight power supply in 2008. However, a Macquarie Research Commodities report says the proposed production cut appears unlikely, since it lacks the support of bigger Chinese producers.
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