mine supplies to dwindle from 2010

Article from Reuters:
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Zinc mine supplies to dwindle from 2010Reuters, Thursday May 8 2008 By Karen Norton
LONDON, May 8 (Reuters) - Zinc prices, on a downward slope since hitting a record peak in November 2006, are expected to fall further this year as mine output growth accelerates and boosts production of the metal used to galvanise steel.
But lower prices, tight credit and high borrowing costs will eventually limit the number of new mines and hence supplies, which should boost prices towards the end of the decade and beyond.
"It still looks as though the market is going to be in surplus this year and next, but things will get more positive in 2011 to 2012, with very little growth in new mine supply," said Adam Rowley, analyst at Macquarie Bank.
Some key mines are also due to close or have lower output around then, further tightening supplies.
Rowley said global zinc prices could easily scale new peaks during this period if demand grew at a decent pace.
Benchmark zinc on the London Metal Exchange hit an all-time high of $4,580 a tonne in November 2006 and has since fallen to around $2,240, partly because speculators betting on higher prices have cut their holdings.
"Prices will continue to fall through to 2009 at least," said Graham Deller of industry consultants CRU Group, predicting a drop to $1,600 by the end of 2008. "It's hard to paint a scenario where the price falls and bounces immediately."
But some analysts think the downside has been overdone and predict the average price this year will be above levels now.
They argue that most of the over-supply will show up as stocks of mined material or concentrates rather than as metal, leaving the market vulnerable to closures and disruptions.
Surplus mine stocks will be processed eventually though and should keep smelters amply supplied until 2010.
The International Lead and Zinc Study Group recently forecast a 215,000-tonne surplus of the metal this year, with output rising by 6.4 percent to 12.06 million tonnes.
BIG CUTBACKS UNLIKELY
Deller thought significant mine cutbacks or closures were unlikely in the next couple of years because the cost of shutting mines down was a strong deterrent.
"The typical miner is not going to hurt until the price is at $1,500, but they'll keep going and assume someone else will cut back first."
Earlier this decade, prices languished just above $1,000 a tonne and many miners continued to churn out material.
But this time, rising costs of labour, power and equipment mean some producers are already feeling the pinch.
Last month, major producer Teck Cominco said it might close its Lennard Shelf mine in Western Australia in the final quarter of next year if prices stagnated.
The mine was only re-opened last year after spending more than three years in "care and maintenance". It was originally scheduled to stay in operation until 2011.
Meanwhile, the credit crunch has made banks more cautious, particularly for smaller zinc mine projects, which may first have been considered when prices were much higher.
"Some mines that aren't financed are going to find it difficut to get funding, but not all of them," Claire Hassall of industry consultants CHR Metals said.
China will be the key to prices over the next couple of years. Chinese zinc mine output grew by more than 9 percent last year to 3.11 million tonnes, accounting for more than one-quarter of the global total.
But mine cutbacks there would still have to be substantial to curtail metal production, with high concentrate stocks still available for conversion into metal in 2009 and 2010.
So far there has been no sign of this. China's National Bureau of Statistics said recently the country's first quarter zinc mine output rose almost 17 percent from a year earlier.
"The supply-side response will have to come in China. In the West they're just tinkering," Deller said.
For details on mine projects see FACTBOX-Global zinc mine projects, sourcing data from Reuters' metal Production Database (MPD). 3000 Xtra users can access MPD by clicking on http://mpd.session.rservices.com)