TNM: Zinc has been the star performer this year. Prices for the metal are up by about 10% so far and the price reached a three-year high of more than US$2,400 per tonne over the summer. Kettle: The key issue around zinc is that there is a looming shortage of supply. One of the reasons is that we've got significant growth in consumption demand for fine zinc in China. You also have a number of zinc mine closures. That means we'll need 600,000 tonnes of new zinc supply over the next ten years and that's going to be very challenging for the industry to deliver. In order to meet the looming shortfall, all zinc projects will need to get the green light within the next 18 months, and in order for that, they need to get permitting in place and prefeasibility and feasibility studies and financing. We estimate the projects will require in total somewhere around US$7 billion dollars of investment, which is a record capital investment for the zinc industry. Right now, you've got very little interest in zinc deposits, there is a looming supply shortfall, and there's just not enough EBITDA from zinc mines. Glencore is different, it's in the zinc space. But the ability of other companies to finance zinc projects is going to be quite hard. And when you've got juniors looking at zinc projects it introduces risk for the banks because juniors and mid-caps have by and large got limited experience in zinc projects. In addition, the projects themselves are not low-hanging fruit. So there are issues around high capital costs, location, and geology. It just means it's going to be more difficult to develop zinc projects so we doubt projects are going to come on line quickly enough. That US$7 billion of investment in new zinc projects that is required equates to about 2.3 million tonnes of capacity. If it comes on stream and on time as envisaged, then the market will be reasonably supplied, but we doubt there's enough momentum for all those projects to come on stream. We see a zinc market that is going to see successive deficits going forward and what that means is we see prices on a significant rising trend. We forecast zinc prices could rise to around US$3,500 a tonne or above on a medium-term horizon. The incentive price is around US$2,600 per tonne-US$2,700 per tonne in 2014 dollars. So you've got prices rising significantly and that may induce enough projects to meet demand. But it's hard to identify projects that will meet demand and there's some uncertainty about what there is left to develop in China, which could supply some of that. TNM: What about zinc recycling? Kettle: We think there will be a significant push into the recycling of zinc, especially in China. We believe the recycling of zinc from EAF dust [EAF dust is generated by steel mills and contains zinc] will be an increasing trend as the zinc price rises and as the zinc content of EAF dust rises from a low level. The rise in the zinc content of EAF dust in China will reflect the rising use of galvanised steel and the increasing use of that higher zinc-containing steel scrap as EAF feed. We believe that an additional 700,000 tonnes of zinc could be recovered over the next ten years globally, reducing the requirement for primary zinc mine capacity pro-rata. But in order for this to occur, there will need to be investment in additional waelz kiln capacity, which will be incentivised by the high zinc price environment. TNM: Iron ore spot prices have slipped below US$70 per tonne for the first time since 2009 and many believe that the price has further to fall. How do you expect the metal to perform next year? - See more at: http://www.northernminer.com/news/w...-zinc/1003374169/?&er=NA#sthash.NmzWutl6.dpuf
IBG Price at posting:
8.8¢ Sentiment: Hold Disclosure: Held
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