Zinc Oversupply Diminishing

Ongoing low zinc prices have been blamed on an oversupply of mined material, but that culprit appears to be heading for the exits.

One speaker at the Commodities Roundtable sessions being hosted by the Institute of Scrap Recycling Industries Inc. (ISRI) in Chicago says the inventory situation is coming back into balance, while another noted that the law of averages show the commodity is destined for another pricing peak soon.

Andy Roebuck of Teck-Cominco, Toronto, called rising zinc inventories “a major source of concern for the zinc industry.” He noted that in constant dollars, zinc pricing has not fared as poorly as it is now since 1932.

This year, however, mine closures have reduced concentrates capacity by 10 percent, and some smelters have also followed suit and shut off production. The turning point in zinc’s supply and demand balance may be indicated by China becoming an importer rather than an exporter of zinc concentrates. The country’s mining output has been hampered by a mining disaster as well as lack of investment in new mines, says Roebuck.

Meanwhile, demand is beginning to increase, led by improved steel production—some of which is galvanized sheet steel requiring zinc additives. Hopefully reflective of zinc’s pricing future, the price for galvanized steel coils has recently bumped up to more than $500 per ton.

Roebuck’s figures indicated that 2002 would see a reduction of more than 225,000 tons of zinc concentrates inventories.

Henry DeFrancesca, a vice president with Imco Recycling’s U.S. Zinc subsidiary, Pittsburgh, remarked that many people are nostalgic for the good old days—but those in the zinc industry are experiencing them due to 1950s price levels for their commodity.

A study of past pricing, however, shows that zinc inevitably hits another spike after lying in a pricing trough for awhile. “These peaks are evidence that there is still some life in our tired old commodity,” says DeFrancesca.

DeFrancesca has charted all the 2003 zinc forecasts he has been able to see, and they are predicting a slightly higher 44 cents per pound average for the year.