CRU Group’s Cancun Verdict: Zinc Prices Need to Rise

Word from the world’s biggest zinc conference is that the industry needs higher prices.

American Metal Market reported that at last week’s Cancun-based International Zinc Association conference, Graham Deller of CRU Group, a leading information provider for the mining business, said that prices as high as $3,000 per MT ($1.36 per pound) might be needed to spur new zinc mining projects.

LME prices currently stand at $1,960 per MT ($0.89 per pound). Prices have declined 10 percent since the beginning of February.

Deller noted that continued growth in China could see smelters there increase their demand for zinc concentrate. He forecast that without new projects, the concentrates market could be in deficit by 3 million MT by the end of the decade.

Lower prices, however, aren’t deterring some market players from buying into zinc mining projects.

One senior manager from Japan’s Dowa Metals & Mining Company told the International Zinc Association conference that Japanese smelters want to invest in mines.

Toshiaki Suyama said that smelters are struggling with high energy costs and low treatment charges. Operators at these smelters see direct ownership of zinc mines as a way to diversify their businesses and secure raw materials for input.

“Dowa is itself investing in zinc and copper mines to secure a steady supply of concentrates,” Suyama told American Metal Market. “We also expect a profit from the mine (that the company invests in), but it is important for us to secure concentrates.”

The highlight of the recent conference was the settling of treatment charges between smelters and mine producers.

Reports indicate that Teck Resources (TSX:TCK.B,NYSE:TCK) and Korea Zinc Company (KRX:010130) have agreed to a benchmark deal that places treatment charges at $210.50 per MT.

That’s a step up from the $191 per MT the two companies settled on last year. Commentators believe the deal indicates a slacker market for concentrate.

Neither company has confirmed the details of the agreement.

Nyrstar puts zinc up for sale

With end users seeking supply, one major zinc producer is putting a significant portion of its output up for sale.

Major producer Nyrstar (EBR:NYV) will sell exclusive rights for 350,000 (MT) per year of its European zinc production, according to Reuters.

More than 10 firms have already approached Nyrstar about buying the supply, including commodity traders like Trafigura and banks with physical trading desks like JPMorgan Chase (NYSE:JPM).

Sources estimate that the offtake is worth some $700 million a year.

The agreement for the production is currently held by Glencore International (LSE:GLEN). The major is divesting the contract as part of changes needed to gain EU approval for its takeover of Xstrata (LSE:XTA).

Zinc producers like Nyrstar may take some comfort from recent signs of life in the market.

Such cues were seen last week in India, when zinc futures edged up 0.45 percent, to 110.50 rupees per kilogram, according to Steel Guru.

Traders said the rising prices were caused by improved demand in the spot market. Speculators were also seen enlarging their long positions.

Company news

Major producer Teck Resources saw a major drop in profits from its zinc operations during 2012.

Last year, the company saw gross profit of $373 million from its zinc unit. That’s a 47-percent drop from the $708 million gross profit that Teck enjoyed in 2011.

Overall output fell 7.4 percent, to 598,000 MT of contained zinc in concentrate, down from 646,000 MT in 2011.

US Zinc is moving forward with the expansion of zinc oxide production at its two Tennessee operations, according to American Metal Market.

“We started the engineering work last year and are in the process of ordering and acquiring equipment for completion later this year or in early 2014,” the private company’s executive vice president, Tracy Baugh, said.

The upgrades are expected to add 14,000 MT of zinc oxide output.

US Zinc sees the market faring well during the year ahead. “As long as automotive stays strong,” said Baugh, “we anticipate slightly better demand this year, specifically in the tire market.”

Emerging zinc producer Trevali Mining (TSX:TV,OTCQX:TREVF) is a step closer to financing operations at its Bathurst camp in New Brunswick.

Trevali announced last week that $30 million in financing for the company’s senior debt and prepaid precious metals facility has been approved in principle by lender RMB Resources.

The company also announced that soft commissioning of its Santander zinc-lead–silver mine in Peru is ongoing. Trevali and its partner, Glencore, expect full commissioning in late March, followed by ramp up to commercial production.

On the exploration side of the ledger, Silver Bull Resources (TSX:SVB,AMEX:SVBL) announced results for the fifth and final batch of underground drill holes at the Shallow Silver Zone on its Sierra Mojada project in Coahuila, Mexico.

The program was designed to twin a series of long holes in a high-grade zinc zone.

Highlights from the program include 22.85 meters grading 19.52-percent zinc, along with 37.05 meters grading 8.33-percent zinc.

Securities Disclosure: I, Dave Forest, do not hold equity interest in any companies mentioned in this article.

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