With experts saying zinc could be in deficit by 2017 if not earlier, miners from Australia to Africa to the European Union are racing against time to attract investment in new projects.
SYDNEY (Reuters) – Zinc miners are betting a long-running global supply glut of the metal used in steel making will turn into a deficit over the next five years as old mines run dry, sparking massive investment in new projects.
From Australia to Africa to the European Union, mining firms are laying the groundwork to dig up an additional 1 million tonnes-plus of zinc annually, nearly one-tenth of world consumption and more than is parked in London Metal Exchange warehouses already overflowing with unsold metal.
Zinc could be in deficit by 2017 if not earlier, experts say, as consumption rises in China, steel manufacturing picks up in Europe and North America and – most importantly – several super deposits run dry, forcing buyers to dip into swollen producer and exchange stockpiles.
With zinc supplies heading for a deficit, Goldman Sachs expects zinc prices to gain around 15 percent by mid-2014.
“While prices are not very good at the moment in zinc, that tightness of supply going forward will drive much better prices,” said Andrew Michelmore, chief executive of Minmetals Resources, whose Century mine in Australia is the world’s third largest.
LME zinc prices, currently trading at $2,024 per tonne, are off more than 20 percent from the peaks of 2011 and the sector is facing a sixth straight year of surplus.
“The turnaround is more about a shortfall in supply than it is about the growth in demand that is occurring,” said Scott Lowe, managing director of Blackthorn Resources, which is digging a new zinc mine in Burkina Faso.
“We think we’re on the cusp of a good thing,” added Lowe, citing analysts as viewing the zinc market heading for the tightest supply conditions in 30 years.
In 2013, the Xstrata -owned Brunswick and Perseverance mines in Canada, along with the Vedanta Resources Plc -owned Lisheen mine in Ireland run dry, removing more than half-a-million tonnes of zinc from the global system.
CHINA SET TO BUY MORE
Hopes for a deficit by miners come as zinc stocks MZN-STOCKS continue a near-uninterrupted climb since 2007. The International Lead and Zinc Study Group says the global surplus ballooned 36 percent to 353,000 tonnes in 2011.
LME inventories – a depository of last resort – increased during the first two months of 2012 to an average of 840,000 tonnes, almost double the 15-year average of 426,000 tonnes, suggesting another hefty glut for 2012. Last week inventories swelled to a near 17-year high.
“To us, what is remarkable is not how poorly zinc has performed in the last three years, but rather how well, given how dreadful its fundamentals have been,” said BNP Paribas metals analyst Stephen Briggs.
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