The Zinc market has been threatening to surge for the last three years but has been a non-event. Initially, the talk started with a supply shortage and hence followed with a rush to zinc projects. Everyone was chasing projects, and all of them had a high valuation, as it is always the case during these times. Money was being raised easily as long as you mention zinc.
Today, in 2019, there is still a feeling of anticipation for the wave to hit. One can be forgiven to think that this is a never-ending story.
What do we use Zinc for?
The most common use for zinc is to galvanise metals for anti-corrosion., manufacture of brass and as an oxide for rubber manufacture and as a protective skin ointment.
Anti-corrosion
If anyone had listened in high school science or chemistry classes, they would have remembered that zinc is highly reactive. When compared with steel or iron, it will preferentially attract all the oxidation (rusting) and corrode first. When the oxidation process starts, the reaction will form an oxide layer on the surface and acts as a barrier. It serves as a sacrificial lamb and can act as the anode or the cathode depending on the chemical situation.
Alloys
A widely used zinc alloy is brass, in which copper is alloyed with 3% to 45% zinc, depending upon the type of brass. Brass is generally more ductile and stronger than copper and has superior corrosion resistance. These properties make it useful in communication equipment, hardware, musical instruments, and water valves.
Other Industries
Zinc oxide
White pigment in paints and as a catalyst in the manufacture of rubber to disburse heat.
Protect rubber polymers and plastics from ultraviolet radiation (UV).
The semiconductor properties of zinc oxide make it in varistors and photocopying products.
The zinc-oxide cycle is a two step thermochemical process based on zinc and zinc oxide for hydrogen production.
Zinc Chloride
Added to lumber as a fire retardant, and sometimes as a wood preservative.
They are used to manufacture other chemicals.
Zinc Sulfide and Sulfate
Used in luminescent pigments such as hands of clocks, x-ray and TV screens and luminous paints.
Used as lasers
Dyes and pigments
Antifouling paints.
There are several other uses of zinc compounds as described in Wikipedia.
Where do we find Zinc?
The typical resource-rich regions of China, Australia and South America are the major producers of zinc. Interestingly, in the 1960s, Ireland was a world-ranked producer of zinc-lead mines. There were up to 6 producing mines and no less than 15 significant discoveries. One of the largest zinc mines in Europe is the Tara mine in Ireland. Tara was established in 1977 and is currently at a depth of 1km below the surface. It was discovered in 1970 and is a zinc and lead deposit. The initial resource was 7oMT at a grade of 10.1% Zn and 2.6% Pb (source: Boliden). In 2017, 2.3MT of ore were processed into metal concentrates containing, zinc, lead and silver (source: Boliden).
I learned this fact several years ago when there was a swag of Irish Zinc projects popping up.
Who are the primary producers?
According to Mining.com, the top 5 Mines ranked by 2017 Annual Production are as follows,
According to Zinc Investing News, the three largest zinc producing regions are,
Rampura Agucha (Indio) with 2017 production of 619,981 tonnes of zinc concentrate and 92,228 tonnes of lead concentrate.
Red Dog mine (Alaska, USA) accounts for 5 percent of global zinc mine production. In 2017, the mine produced 542,000 tonnes of zinc concentrate. The company estimate that in 2018 it will produce 663,000 tonnes of zinc concentrates.
Mount Isa Mines in Australia produced 226,000 in 2017 (a reduction of 22%).
World Consumption
The annual global consumption for zinc is about 14.1MT. If we take the calculations from the above, the three largest mines in the world are producing just under 2M tonnes. The largest zinc mine in Europe is producing about 200,000 tonnes per year so one would not be wrong in thinking that there may be a shortage soon. According to Mining Intelligence (source: Mining.com), the top five producers make up to 40% of the total zinc production. Based on the rough figures that I have quoted, my pure mathematics tells me that the other 60% will produce 3MT? I think something is not correct :-).
What is the Price of Zinc doing?
The news on commodities is not looking good currently. The last manufacturing data from China clearly show that there is going to be a slowdown on products, which is not good news to most investors. However, the upside is the Chinese government is being proactive in stimulating the economy, but the trade war between the US and China has not helped. The recent announcement of tax cuts is a good sign that Beijing is making it known that things will not go south and that it is sorting out the current issues. For the commodity market in general, all this is not helping the companies that are promoting an upside shortly.
According to a report on CNBC, the outlook for Zinc is mixed. Inventories are down, and the technical view is bearish. The market feels that the decreasing demand is now controlling the market rather than a simple order vs supply concept. The slowing China market is the primary driver.
I would suspect that the decreasing outlook for commodities is going to bring more supply to the market. The projects which were being held up with a buoyant market by “red-tape’ will now be loosening those barriers so to increase their fortunes. In minerals, the lack of a cohesive front to control such matters have always made mineral pricing so much more volatile, unlike the oil and gas participants.
I am not convinced that the turn around is near as China is now reaching First World Problems od rising wages and increasing administrative hurdles. The thinking that a central government is going to prop the economy up and have this unlimited use of money is now a thing of the past. What I have heard over the last few years is the retail sector in the second tier and below cities are entirely kaput. There is still money being used internally to buy things, but the credit control is hurting investors. Investors internally are too scared to spend, and when they do want to spend on investments, the returns are no longer attractive. Those that are outside the Chinese Wall are now not able to access their funds as that flow of capital is now virtually closed.
Conclusion
The anticipation of a market to run is premature or “publicised” without a thorough understanding of the parameters involved to sustain the economics. Like the tungsten market in 2012 and 2013, I was marketing our tungsten project. I could see the pricing being buoyant, but I could not understand how it could be sustained with those parameters. There appeared a rush for the product, but when I researched the fundamentals, I started to note some issue. One of the problems was the lack of transparency with pricing and why China who reports a vast resource was a nett importer of concentrates. If China had a lot of resources, why is there a squeeze on the price? Typical demand vs supply fundamentals would show that supply way exceeds demand.
In the case of zinc, I can see that there is a shortage coming, but there does not appear to be a clear path of supply shortages. The projects in the pipeline in some instances seem to be sufficient for any increased consumption. Price may still rise, but I think pricing will find an equilibrium that will sustain future pricing.
I hope this gives an overview of why the Zinc market did not flourish and help interested readers have a better understanding of the zinc market. If you need someone to help get your message across to your clients or intended audience or require some research on products or business development, please give Samso a call or send us an email at noel.ong@samso.com.au
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