Zinc’s Medium-term Outlook Positive, Says Haywood’s Ioannou

Zinc prices are expected to hold steady for the remainder of 2013, but if Haywood Securities’ Stefan Ioannou is to be believed, the metal’s medium-term outlook is a bit more exciting.

In a July 1 interview with the Gold Report, Ioannou said that despite high London Metal Exchange (LME) zinc inventories, he believes that recent and upcoming closures of large zinc mines ”will squeeze the supply side and drive the [zinc] price higher.”

In his opinion, new advanced-stage zinc projects, even coupled with LME supplies, will not be able to counter the loss in supply from these large mines. He noted that as a result, higher zinc prices are not far off, stating that investors should look to companies such as Trevali Mining (TSX:TV,OTCQX:TREVF) and Foran Mining (TSXV:FOM) for investment opportunities.

Figures from China

On a similar note, back in March, Bloomberg reported that analysts at Morgan Stanley were predicting the end of a six-year glut in zinc production on the back of lower output from China and record global demand.

At least part of that prediction now seems to be coming true. Shanghai Metals Market recently stated that China’s May zinc production came to 443,000 metric tons (MT), noting that with smelters in the country cutting output and conducting maintenance, the June total will likely be lower than that. That reduced output will also deplete zinc inventories and as a result help stop prices from slipping, the publication said.

However, lower production does not mean that China is not still in need of zinc. In fact, the nation’s refined zinc imports for May rose 154 percent from the previous year, to 55,413 MT, as per information from Platts. Responsibility for the increase is being placed on profit taking and demand from the galvanized steel sector.

Overall, the country is not expected to import that much more refined zinc than it did in 2012. Beijing Antaike anticipates imports totaling 620,000 MT this year, up only slightly from 618,000 MT last year.

Price update

Zinc is currently selling for $1,840 per MT to cash buyers on the LME, while three-month zinc is selling for $1,866, according to the LME’s website.

Price charts from Kitco indicate that while zinc is down from where it sat at the beginning of June, it is up from its position toward the end of that month.

Meanwhile, Indian zinc futures fell Friday by 0.62 percent, to 111.5 rupees per kilogram, in part due to weak domestic demand, SteelGuru reported.

Junior company news

Canada Zinc Metals (TSXV: CZX) announced 2013 exploration plans for its Akie and Kechika Regional projects, noting that it has two main goals. The first is to complete up to 4,000 meters of diamond drilling at Akie and the second is to expand the 2012 airborne VTEM survey completed at its Akie, Pie and Mount Alcock properties.

Canadian Zinc (TSX: CZN,OTCQB:CZICF) received two important land use permits for mining operations at its Northwest Territories-based Prairie Creek mine from the Mackenzie Valley Land and Water Board. One permit allows the company to build and operate a facility designed to temporarily store outbound concentrate and inbound supplies, while the other permits it to extract ore and waste rock from the mine, among other things.

The permits are valid for five years; Canadian Zinc has the option to extend them for an additional two years.

Donner Metals (TSXV: DON), which is developing a zinc mine in Quebec through a joint venture with Glencore Xstrata (LSE:GLEN), had a volatile week in the markets. The Vancouver-based company started producing concentrate from the Bracemac-McLeod mine in mid-May and on June 26 announced a $4.5-million financing. However, the stock sold off after equities analysts at Haywood Securities downgraded it from a “buy” to a “sell” and dropped the target price from $0.30 to $0.10. Donner fell 30 percent on Thursday, but recovered 42 percent on Friday, closing at $0.05.

Melior Resources (TSXV: MLR) and Firestone Ventures (TSXV:FV), whose main focus is the Torlon Hill zinc-lead–silver project, located in Guatemala, entered into a letter of intent that will allow Melior to acquire all of Firestone’s issued and outstanding shares, with Firestone shareholders receiving one common share of Melior in exchange for 2.895 common shares of Firestone.

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

Related reading:

Zinc Prices to Remain Steady Throughout 2013

Are New Mines Threatening Zinc’s Positive Price Outlook?

Trevali Moves Forward as Zinc Prices Hold Steady