Nyrstar Disrupts Zinc Market Monotony

Though the summer doldrums have kept the zinc market relatively quiet this past month, Nyrstar (EBR:NYR), the world’s largest zinc producer, has made the headlines three times in the last two weeks. 

The first news from the company came on July 26, when it reported its results for the first half of 2013.

Highlights include an average zinc price of US$1,937 per ton, up slightly from the second half of 2012. However, Roland Junck, CEO of Nyrstar, noted that “[f]ollowing a strong start to the year, base metals prices declined sharply in March with the zinc price trading between USD 1,800 to USD 1,900/t for the majority of the second quarter.”

As a partial consequence of that price drop, the company’s “financial performance declined in H1 2013 with group underlying EBITDA of EUR 87 million, down 20% compared to H2 2012.”

Zinc metal production at smelters came in at 519 kilotons, a 5-percent decline from the last six months of 2012.

Partnership in the works

The next day, Reuters reported that by the end of August, Nyrstar will team up with at least one partner to take over a marketing agreement to sell 350,000 metric tons of zinc output valued at $650 million per year. Commodities giant Glencore International — now Glencore Xstrata (LSE:GLEN) — signed the deal in 2008, but agreed to give it up in order to get the European Union’s approval for its takeover of Xstrata.

Though Nyrstar would have preferred to take over the agreement on its own, according to Bob Katsiouleris, the company’s senior vice president for marketing, sourcing and sales, lack of the necessary capabilities and organization mean that it is not able to do so. “We are going to keep a couple of key accounts in-house and we are going to deal with one or more marketing partners for the rest of the sales but we are going to be more involved in the process,” Reuters quoted him as saying.

To that end, Nyrstar has established a shortlist of five possible partners. Though it has not disclosed which companies are in the running, metals industry sources believe Trafigura and Louis Dreyfus are on the list.

Australian jobs at risk?

Behind that positive news came rumblings that have sparked concern about Nyrstar’s Australia-based Port Pirie operations, which include a lead smelter and refinery, a precious metals refinery as well as copper and zinc plants.

On August 2, news surfaced that in a memo, the company had suggested to workers at Port Pirie that the plant’s performance is “below what the facility is capable of,” as per The Australian. More specifically, according to the Mercury, the memo said that the facility “cannot continue to operate unprofitably for the next three years.”

Port Pirie is due for a $350-million upgrade in three years’ time, and though Glenn Poynter, Nyrstar’s general manager, was quick to assure the public that the memo does not signal upcoming job cuts or closure of the facility, many are worried that exactly those things will come to pass.

The Australian Workers Union, for one, has accused Nyrstar’s board of delaying the decision to go forward with the upgrade, the Mercury states. On the same note, Tom Kenyon, South Australia’s manufacturing manager, told The Australian that “[u]ntil [Nyrstar] make[s] that final investment decision in February, until the board says yes … there is always that danger” that the upgrade will not take place. He also noted that while the government has done everything it can to push the company to a “yes” decision, it would be “very difficult” for it to give further assistance.

The consequences of a negative decision from the board could be dire, Martin Hamilton-Smith, opposition economic development spokesman, was quoted as saying by The Australian. “A closure of the plant would have a dramatic and far-reaching effect on the economic, social and political future of this state,” he said, continuing on to comment, “[t]his could expose the state budget to hundreds of millions of dollars in contingent liability, something that is not presently budgeted for.”

Nyrstar will make a final decision on the upgrade at a February meeting in Zurich, states The Australian.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.