zinc is the fourth most used metal

Zinc is fourth most used metal: ASX "zinc plays"
Friday, November 01, 2013 by John Phillips


Global demand for zinc is increasing at a time when major mines are closing.
Zinc is poised to move out of the shadows, with demand set to ramp-up as China continues to drive growth.

Zinc is already the fourth most used global metal, but where the China story plays out is that the country uses around a quarter of the quantity of zinc used by Western brands.

How this breaks down is that China galvanises 4% of the steel it produces, far less than the 18% average used in the Western World.

Inevitably, China will increase this amount when they target export markets and strive to meet Western standards.

The usage of zinc has around half for galvanising metals used widely in the construction, roofing and vehicle industries, followed by brass and bronze (17%), alloying (17%), zinc semi-manufactures (6%), chemicals (6%) and the remaining four per cent in various sectors.

China’s level of vehicle ownership relative to its population is currently less than the United States’ during the 1920’s – China’s growth has just started.

China used close to 5500 tonnes of zinc in 2011, which is four times as much as a decade ago, and a stagging ten times more than twenty years ago.


Zinc supply shortage looms

Zinc takes another interesting turn when evaluating supply verse demand, which of course has a direct correlation with price.

There are looming mine closures, with around 11% of supply, or 1.7 million tonnes, is set to try up in the next four years as mines close, which includes Century (500,000t), Brunswick (200,000t just closed), Lisheen (167,000t), Skorpion (162,000t) and Perserverence (128,000 closing now) - which will cause a fall in production.

Global mine production in 2012 was around 15 million tonnes.

With supply constraints and increasing demand, this is likely to drive the price of zinc higher from the current US$1925 a tonne, and with a rapid decline in mined grades, this puts additional pressure on prices.

The current price is up from US$1,820 a month ago.

Adding to potential supply problems, the next generation of zinc miners are at an early, pre-funding stage and are mostly located in countries with high sovereign risk; however, they generally benefit from economies of scale, and they will derive the biggest share of their income from zinc.


Is zinc an opportunity?

The fundamentals of China needing far increased zinc levels in the future is one driver to a potential re-rating in the metal, along with a back-drop of constant and growing demand, while at the same time the majors are low on zinc, with mid-tiers not exploring.

Add to the mix limited new discoveries in the past decade.

It must be remembered that zinc is not just a China story, with some forecasters having global demand for the metal doubling within the next few decades.