short and medium term decline in zinc price pr

Short and medium term decline in zinc price projected

A timely reminder that base metal prices can fall as well as rise was the theme of the opening presentation at a London one-day zinc-focused event.

Author: Lawrence Williams
Posted: Wednesday , 05 Sep 2007

LONDON -

Speaking at Mining Journal's 20:20 Zinc Day yesterday, zinc market expert Claire Hassall of CHR Metals opened proceedings with a note of gloom for those companies presenting their zinc projects to the assembled audience of mining investors analysts and corporate representatives. CHR Metals is a provider of internet-based analysis of the lead and zinc markets. Prior to setting up the company in 2000, Ms Hassall was Director of Metals Services of specialist metals consultancy Brook Hunt, so has a strong track record in the sector.

The zinc price has had a tremendous run over the past year and a half which, as Ms Hassall pointed out, was partly through several years of under-investment in the sector when the prices had remained perilously low, and that no-one at that time had predicted the mercurial growth in first the Chinese and then the Indian economies and consequent demand. China had been an exporter of zinc, but rapidly turned around to become a major importer. Effectively these growing economies are projected, according to Hassall, to add 4 million tons a year to zinc demand between 2000 and 2010 - and looking further ahead a further 4.1 million tons between 2010 and 2020.

Although Chinese growth is still running at high levels - 11 percent this year (lower than 2006), overall global demand increase has slowed to around 4-4.5 percent as against 7.4 percent in 2006.

But, although demand growth continues at a reasonable, but lower, level, supplies have also picked up sharply over the past year. Hassall pointed out that as zinc mines tend to be far smaller than, say, copper operations, the capital cost of bringing a new mine on stream, or resurrecting an old one, is comparatively low and the mining sector can react much faster as prices rise. She did point out though that there are few, if any, really major new zinc mines on the horizon, but that the continuing surge of new production from smaller operations is sufficient to put the market into surplus up until around 2010.

There is also a worry about substitution. As prices rise, consumers may look harder at alternative products and this can have a damaging effect on long term prospects for the metal.

So where will the zinc price go? Hassall's research suggested that there may be the occasional upward bumps in price, but that the current downturn being experienced by the sector will continue for the next three years at least, although she feels that some new projects may fall by the wayside if the price does drop, thus easing the downward pressure. The forecast thus is for prices to remain at or around current levels for the remainder of this year, but as much of the new production comes on stream, Hassall expects prices to fall for a number of years thereafter.

As far as existing zinc miners are concerned, though, Hassall feels they are mostly very profitable, and can remain so even with a sharp fall.

Perhaps this was not what potential investors and zinc miners wanted to hear at a zinc meeting, but after the huge price rises, the reminder that, like other base metals, zinc prices tend to be cyclical in nature is perhaps a much needed return to reality.

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