Tuesday, November 19, 2013

Minesite Newsletter 19th November 2013

Untitled Document
Minesite.com Informed comment and independent mining news
Minesite Weekly Roundup 12th - 19th November 2013
Dear Minesite subscriber,
Weekly Review

Zinc has been in surplus every year since 2007, according to an SP Angel morning note circulated this week. In the nine months to September, the market was 38,000 tonnes in surplus, which was an improvement on the 98,000 tonnes surplus that was running this time last year.

The amount of the surplus doesn't seem to have had much of an effect on the price though, which at US$0.84 per pound is currently trading at almost exactly the same price it was at this time last year.

What may end up making more of a difference is the amount of the metal held in LME warehouses. After five years of relentless rises from less than 100,000 tonnes at the beginning of 2008, this now looks to have peaked at around the million mark. The pattern over the last 12 months has been one of steady decline marred by the occasional spike.

Zinc bulls have been calling a rise in the zinc price for many years, partly on structural grounds. Old mines are running down and new ones aren't, say the bulls, likely to produce quite as much product. Up till now the market has disagreed, and it's easy to see why. Mine production in the nine months to September this year was, at 9.7 million tonnes, little changed on production last year.

But demand is rising too, up 5.6 per cent year-on-year, driven by a 10 per cent increase in demand from China and a nine per cent increase from India.

In that context, it was interesting to see ZincOx raising money, supported by the IFC as new cornerstone investor. ZincOx's new Korea Recycling Plant has had more than its share of issues, which is why the new money is required. But comment from broker Finncap argues that these issues have now been "remedied".

Once the operation is up and running, ZincOx's costs will be in the lowest quartile, so profits ought to be fairly easy to come by even in the current weak pricing environment. But if demand continues to rise and warehouse stocks to fall, the zinc price could start moving up too and the IFC's investment could look very well timed.

Zinc bulls have been wrong before, but the stars are now at last beginning to align.

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