COLUMN-High-flying zinc ignores European smelter restart: Andy Home

By Andy Home

LONDON, – Belgian Nyrstar is reactivating the Budel zinc smelter in the Netherlands after a four-month care and maintenance period.

The company, controlled by global trading house Trafigura, said improved market conditions and the reinstatement of a Dutch energy cost assistance scheme will allow the plant to restart later this month, although not at capacity. total annual 315,000 metric tons.

It is the second European smelter to come out of care and maintenance this year after Glencore restarted its 165,000 tonne per annum Nordenham smelter in Germany in February.

The zinc market seems to have taken the news in stride. The London Metal Exchange’s three-month metal hit a 13-month high of $2,974 per tonne on Tuesday. It is currently trading just below that level at $2,880.

Zinc is being boosted by the broader flow of investment money into the base metals sector. But the zinc narrative has also changed, with the focus shifting from smelter constraints to mine supply issues.

MARKET STRICTER THAN EXPECTED

Smelter treatment costs have collapsed this year, indicating a squeeze on the availability of mined concentrates.

This year’s terms of reference were set at $165 per ton, up from $274 in 2023. That already seems generous for smelters. Spot times for delivery of Chinese imports have fallen to $30-$50, the lowest level since 2018, according to price reporting agency Fastmarkets.

This is the culmination of two years of declining mining production. Global mining production contracted 2.3% in 2022 and another 1.2% in 2023, according to the International Lead and Zinc Study Group.

The Group’s latest forecast is that mining supply will improve this year, but only by a marginal 0.7% and largely thanks to the progress of the 250,000 tonne per year Kipushi mine in the Democratic Republic of the Congo.

Limited raw material supplies will act as a brake on refined production growth this year, according to ILZSG, which now expects metal supply to grow just 0.6% this year, compared to forecast growth of 3.3 % when the Group last met in October.

The sharp decline in global production explains why ILZSG has reduced its expected supply surplus for 2024 from a surplus of 367,000 tonnes to a much more marginal 56,000 tonnes.

The ILZSG’s rethink on mining supply and the sharp cut in the projected surplus reflect the latest forecasts from sister organization the International Copper Study Group.

However, there is a key difference between the two metals.

THE PRICE IS OK

The copper mine’s supply problems have largely been due to operational limitations or, in the case of the closed Cobre Panamá mine, a Supreme Court mandate.

Most zinc mines that closed over the past year did so largely because of price.

The price of zinc on the LME fell from a record high of $4,896 per ton in March 2022 to a low of $2,215 in May 2023, leaving a trail of price declines in its wake.

However, the recent rally means prices are now trading around $400 per tonne above the 90th percentile cost of production, according to Citi analysts.

Each mine has its unique cost settings and one price alone may not be enough, but the higher the price, the greater the potential for resets.

Swedish producer Boliden, for example, has been negotiating with unions at its Tara mine in Ireland over a new contract that would pave the way for resuming operations after a year of inactivity.

The results of a vote among union members will be known on Friday, according to local news sources.

The price has already been voted on.

FLUID EARTH

ILZSG estimates that European zinc mining production fell 6.2% in 2023 and forecasts another 7.9% drop this year due to the closure of Tara and the Aljustrel mine in Portugal.

If Boliden wins its union deal at Tara, that will change just as the restart of the Budel and Nordenham smelters changes the dynamics of refined metals, particularly in Europe.

Zinc fundamentals are currently very fluid.

So is the positioning of the funds in the London market.

Collectively, investment funds had a net shortage of zinc in February, when the LME price was still below $2,500 per tonne.

At the close of last week, they had net long positions to the tune of 27,036 contracts. Absolute long positions of 59,391 contracts are the highest since June 2022.

Investors’ bullish positioning remains modest compared to other base metals such as copper, which has stronger energy transition credentials.

It is also likely to be more volatile simply because the fundamental picture for zinc is changing so rapidly.

The views expressed here are those of the author, a Reuters columnist.

This article was generated from an automated news agency feed without modifications to the text.