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Unlike most zinc market analysts, major miner Glencore Xstrata sees zinc’s prospects improving sooner rather than later.
As Zinc Investing News reported earlier this month, the general consensus among zinc market analysts appears to be that while prices for the metal are not likely to experience much movement for the remainder of 2013, longer term zinc’s outlook is positive.
Now, however, mining giant Glencore Xstrata (LSE:GLEN) has voiced a slightly different opinion. At its investor day on September 10, company officials told attendees that in the next few years — sooner than most have predicted — the zinc market will face a structural deficit.
Deficit details
In a recent article, MetalMiner quotes Glencore Xstrata’s Daniel Maté and Chris Eskdale as explaining the company’s deficit prediction by saying that zinc demand is growing at a rate of 5 percent per year, “driven by a gradual improvement in key consuming sectors and regions, notably construction and automotive.” That means about 600,000 metric tons (MT) of new zinc mine capacity will be needed each year, with 2 million MT of new annual production required by 2016 and 5 million MT by 2020.
While there has been some concern that new zinc mines will provide more than enough metal — Stephen Briggs, a senior metals strategist in commodity markets strategy at BNP Paribas, said earlier this year that with the zinc market “awash with excess inventory” and new mines and expansions in the works, we would need several years of deficit just to “erode the inventory that has built up in the past five years” — Glencore Xstrata sees the situation differently.
The company anticipates that such “[k]nown expansions and new projects” will add 1.1 million MT of zinc to global production by 2016, an amount that, though substantial, will nevertheless leave a supply gap of nearly 1 million MT, according to Platts. Though Glencore Xstrata has not yet given any hard numbers regarding prices, a deficit of that scale is sure to mean they will increase; MetalMiner suggests that “significant upward movement” may even occur in the next year.
While investors may be hesitant to take the company at its word given that most zinc market watchers do not see the metal’s prospects improving quite so soon, Glencore Xstrata is, as MetalMiner points out, the world’s largest zinc and lead miner and trader, and is probably worth giving a listen.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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