ZINC-Major market developments in October

LONDON, Nov 4 - The zinc market is heading for another sizeable surplus next year as high prices have encouraged producers to restart idled capacity, while demand growth is expected to be sluggish, some analysts say.

But others are less bearish on the market's prospects.

"The fundamentals are basically poor. It's hard to escape the conclusion that the market is heading for a significant surplus next year and beyond," said independent consultant Angus MacMillan.

He saw prices falling towards $1,800 a tonne in the coming months and lower still into 2010.

At 1602 GMT the London Metal Exchange three-months price <MZN3> was indicated at $2,235/45 a tonne.

But others say investors will keep buying, encouraged by economic data, such as car production and construction, which will show strong year-on-year gains in the first half of next year, because things were so bad in the comparable period.

However, Giles Lloyd of industry consultants thought prices would eventually fall to reflect the poor fundamental picture.

"One big concern is that we're already seeing mine restarts," he said.

He said that if prices remain where they are and companies have access to the cash to restart operations more could be encouraged to do so.

Neil Buxton, managing director of GFMS Consulting was more upbeat on demand and did not anticipate a massive supply surge.

"That does not necessarily mean that prices are going to rally significantly," he said, adding that it could instead mean that the market holds on to the bulk of its recent gains.

Below are some of the more significant recent developments in production, stocks and prices that may influence the direction of the market in the rest of 2009 and into 2010.

PRODUCTION:

Oct 30 - HudBay Minerals Inc <HBM.TO> said it will restart its Chisel North mine and concentrator in Snow Lake, Manitoba effective immediately, and expects full production from the operations by the second quarter. The mine and concentrator have been on care and maintenance since the first quarter of 2009, due to depressed zinc prices at the time. The company expects the restart to provide about 30,000 tonnes of zinc concentrate feed to its Manitoba-based Flin Flon zinc plant annually. [ID:nBNG474359]

Oct 26 - The global zinc market was in surplus by 327,000 tonnes in the first eight months of 2009, the International Lead and Zinc Study Group said in its latest monthly bulletin. Global refined zinc use was 6.912 million tonnes, down from 7.724 million a year earlier. World refined zinc output was 7.239 million tonnes, down from 7.780 million in the same period last year. [ID:nLQ192290]

Oct 26 - Repairs to the Century zinc concentrate pipeline that burst on Oct. 5 will extend into November as it awaits installation of a section of piping, the mine's owner Minmetals said. A component needed to bypass the damaged area of the 304-kilometre pipeline will have to be installed over a 1 kilometre distance before operations resume. [ID:nSYD483255] On Oct. 22 the company said inventories of zinc concentrate held by the mine were 30,000-35,000 tonnes, half the level of early October. [ID:nSYD452729]

Oct 22 - Doe Run Peru operations at its La Oroya smelter, stopped since June because of financial and environmental troubles, might not restart until 2010. The company, a unit of U.S.-based Renco Group, had said in September that work at its La Oroya smelter would likely resume within "a few weeks." Doe Run, which halted work after banks cut its credit, had said it could regain access to loans and restart production at the world's most diversified smelter if the deadline were extended.

The Peruvian Congress voted last month to give Doe Run Peru a 30-month extension on its environmental cleanup program, which previously it was required to finish by October. [ID:nN221807]

Oct 22 - Anglo American Plc <AAL.L> announced a new restructuring that will shed a quarter of overhead staff and save $120 million a year. The company said it would divest more assets including its zinc operations. [ID:nLM440928] [ID:nLN363059]

Oct 22 - China produced 3,108,500 tonnes of refined zinc in the first nine months of 2009, up 5.2 percent from the same period last year. Mined zinc output fell by 11.1 percent over the same period to 2,110,800 tonnes. [ID:nAPI000642]

Oct 21 - Peruvian mine workers returned to work after a 48-hour mining strike intended to pressure Congress to pass two bills that would improve labour benefits, the national association of mining unions said. Miners want the government to lower the age for retirement and lift caps on profit-sharing, but it is not known when the bills might be put on the agenda for floor votes. [ID:nN21494542]

Oct 16 - Federal and state approval is expected imminently for a major expansion of Teck Resources Ltd's <TCKb.TO> Red Dog lead-zinc mine in Alaska. The mine, located on land owned by the region's native Inupiat Eskimo people, would be allowed to start processing ore at a new site, Aqqaluk, that would effectively double the 20-year-old mine's lifespan, under the pending permits. A mine official said the expansion was needed to keep Red Dog from shutting in 2011. The mine operators hope to start working on the Aqqaluk deposit in early 2010. [ID:nN16370689]

Oct 13 - Japan's top zinc companies plan to produce 283,822 tonnes of refined zinc in six months to end-March 2010, up from 246,319 tonnes in the preceding six months and 278,212 tonnes in the same period a year earlier. [ID:nT181353]

Oct 12 - The global zinc market will be in a surplus of 227,000 tonnes, following a 380,000 tonnes surplus this year, the ILZSG said. The ILZSG expects global consumption to rise by 11.9 percent next year to 12.04 million tonnes and also forecast that world refined zinc output will grow by 10.1 percent to 12.26 million tonnes next year, due to increased output at many plants which made cutbacks. [ID:nLC459207]

Oct 8 - Australia's Ironbark Gold Ltd <IBG.AX> said it may sign supply contracts in Europe to help fund a zinc mine in Greenland, which could yield up to 200,000 tonnes of metal annually starting in five years. Zinc miners are stepping up financing efforts to exploit projected supply shortfalls caused by older mines nearing the end of operations. A mixture of debt and equity financing would be used to help meet the estimated $400 million cost of developing Ironbark's Citronen mine, supplemented with supply pacts struck, a company official said. [ID:nSYD495023]

Oct 8 - HudBay Minerals said it would put development of its Lalor gold-zinc deposit in Manitoba on a fast track, and that exploration successes at the site suggested the beginning of a much-bigger find. [ID:nBNG436205]

Oct 2 - South African diversified miner Exxaro <EXXJ.J> said it had restarted production at its Zincor refinery after a blast at the only plant of its kind in the country killed three workers and injured 12 others. A company official said the refinery had been restarted the previous week and was running at 90 percent of its capacity of 9,000 tonnes per month, but would ramp up to full production within two weeks. [ID:nWEA3589]

Oct 1 - The new co-owners of Chelyabinsk Zinc Plant <CHZNq.L> have pledged to restore output at Russia's top zinc producer to pre-crisis levels, a regional governor's press office said. The press office of the Chelyabinsk Governor Piotr Sumin, quoted Urals Mining and Metals Co Chief Executive Andrey Kozitsyn as saying that new owners would guarantee stable supply of raw materials to the plant for it to produce some 153,000 tonnes of zinc in 2010. [ID:nL1608533]

Oct 1 - Labour talks at Antamina, a major copper-zinc pit in Peru, are going well and a new contract should be completed this month, the mine's union leader said. The mine and the union are negotiating a new contract to replace a current three-year agreement that expired July 24. [ID:nN0184744]

PRICES

Zinc was one of the stronger performers in the LME complex in October, with prices ending the month at $2,170 a tonne, up from $1,950 at the end of September.

The market took off around Oct. 19, helped by a surging copper market and strong investment money flows into the complex.

Sentiment in zinc was also boosted by news that repairs at the Century zinc mine in Australia, following the zinc concentrate pipeline burst, would extend into November.

Output had already fallen in the September quarter from a year earlier.

Three-months zinc prices reached $2,365.75 a tonne on Oct. 26, their highest since May 2008.

While gains were pared as demand worries continued to weigh on sentiment, zinc still put in a strong performance for the month.

In July, the twice-yearly Reuters base metals price poll [MET/POLL] put the median average for the LME cash zinc price <MZN0> at $1,420 a tonne, up from the January forecast of $1,212.50 a tonne.

STOCKS

LME zinc stocks eased slightly in October, ending the month at 428,525 tonnes. Nevertheless, they are still not far off early September levels, when inventories were at their highest since December 2005.

Zinc stocks in Shanghai warehouses rose sharply however to 145,536 tonnes from 109,200 tonnes a month earlier.

Western world commercial stocks totalled 910,400 tonnes or 8.1 weeks of demand at the end of August, up from 900,300 tonnes and 8.0 weeks the previous month and from 764,000 tonnes and 6.0 weeks at the end of 2008.

For a graphic on zinc stocks and three months prices, click on: http://graphics.thomsonreuters.com/119/LME_ZNC1109.gif

(3000 Xtra users can access Reuters Metal Production Database by clicking on http://mpd.session.rservices.com. MPD details historical and predicted output and capacity for bauxite, copper, lead, zinc and gold mines, alumina refineries, aluminium, copper, lead and nickel smelters and copper, zinc, lead and nickel refineries between 1997 and 2012.)