By Francesca Freeman and Rhiannon Hoyle
Zinc producers are raising the premium they charge customers for
refined metal as a shortfall begins to emerge due to mine closures
and strong Chinese demand.
Two major producers, Nyrstar NV (NYR.BT) and Mitsui Mining &
Smelting Co. (5706.TO), confirmed they had increased their charges
for buyers such as steel manufacturers in the face of strong
end-demand, tight supply and similar industry-wide price
increases.
Supplies of zinc--which can be used to coat steel to protect it
from corrosion--have been rapidly declining. The global refined
zinc market was undersupplied by 18,000 metric tons in the first 11
months of 2013, according to the International Lead and Zinc Study
Group, an intergovernmental organization. This compares with a
surplus of 179,000 tons in the same period of 2012.
Mining companies are shutting down zinc-output facilities in
mining hubs such as Canada and Australia because reserves in those
mines have largely been depleted. Prices on the London Metal
Exchange closed Friday at $2,022 a ton, up 1.3% from the day
earlier. It has risen around 7% since the start of December.
"Zinc has recovered particularly impressively; we are not alone
in favoring this metal," said BNP Paribas analyst Stephen
Briggs.
Commonwealth Bank analyst Lachlan Shaw said prices had surpassed
his expectations in 2014 to-date, while analysts at Commerzbank
forecast prices to reach $2,100 a ton by the end of the year.
Premiums--charges on top of the London Metal Exchange price for
delivery of special high-grade zinc--have risen to around $180-$200
a metric ton this year, from $120-$130 a ton last year, a gain of
nearly 70%.
A spokeswoman for Nyrstar, one of the world's largest producers
of zinc, said their increase to customers has been in line with
these rises, without giving an exact figure.
"We have seen charges for special high-grade zinc--what we call
premiums--increase across the industry in 2014, and, as a result,
Nyrstar has and will continue to follow market trends," the
spokeswoman told The Wall Street Journal.
Japan's biggest producer, Mitsui Mining & Smelting, has also
raised its zinc premiums for 2014 by around 70%, underpinned by
rising demand, a spokesman said. Mitsui largely exports to Taiwan
and China, the world's largest consumer of the metal.
Chinese demand for the material has been strengthening, as the
world's No. 2 economy invests in new infrastructure such as
airports and rail lines. Imports of refined zinc into the country
rose more than a fifth in 2013, according to customs data.
Zinc is resistant to rust, so it is used to coat steel for
making lampposts, car doors and beams. It also is combined with
copper to make brass.
Stockpiles of the metal held in LME warehouses currently stand
at 828,575 tons, down 32% since the start of 2013.
Glencore Xstrata PLC's (GLNCY, GLEN.LN, 0805.HK) Brunswick and
Perseverance mines in eastern Canada, which produced a combined
335,000 tons of zinc in 2011, closed last year. Output from MMG
Ltd.'s Century mine in Australia's Queensland state is also
slowing, with the world's third-biggest open-pit zinc mine slated
for closure by 2016. MMG previously estimated Century's output to
fall about 5% in 2013.
Analysts and investors say the supply shortfall will continue to
support prices in the $15 billion zinc market, a rare bright spot
for commodities bulls. They consider many raw-materials markets,
from coal to corn, to be oversupplied, a situation that has broadly
weighed on commodity prices.
--Mari Iwata contributed to this article.
Write to Francesca Freeman at francesca.freeman@wsj.com and
Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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