Column: Russian mine fire turns up the heat on zinc supply: Andy Home

Nyrstar NV

09/11/2023 13:52

By Andy Home
       LONDON, Nov 9 (Reuters) - The fire at the Ozerny mine in
Russia has been extinguished but it has heated up the zinc
market. 
    London Metal Exchange (LME) three-month metal  CMZN3  jumped
to a five-week high of $2,631.50 per metric ton on Wednesday
when the news broke. 
    The price has since retreated to a current $2,595.00 as the
market waits for an update on the status of what should be the
largest single addition to mine supply over the coming year. 
    A delay in the new mine's ramp-up would add to the growing
stresses on the zinc raw materials supply chain. 
    Low prices have resulted in a lengthening list of mine
curtailments in recent months, resulting in falling smelter
treatment terms and a rising refined zinc price.
    
    PRICE CASUALTIES
    The LME zinc price hit a three-year low of $2,215 per metric
ton in May, triggering a string of mine closures. 
    Swedish producer Boliden  BOL.ST  was the first, announcing
in June the curtailment of its Tara mine in Ireland. 
    Australia's Aurora Metals went into voluntary administration
in July with its Mungana and King Vol mines in Queensland placed
on care and maintenance. The assets are now for sale. 
    Aeris Resources  AIS.AX  shuttered its Jaguar mine in
Western Australia in August and operations were suspended at the
Aljustrel mine in Portugal a month later. 
    By the end of September analysts at Macquarie Bank had
already totted up closures totalling 300,000 metric tons of
annual zinc capacity. 
    Price-related curtailments and a prolonged four-month strike
at the Penasquito mine in Mexico would result in global mine
supply contracting by 1.1% in 2023, the bank said at the time. 
    Since then there have been more mine suspensions, most
recently by Nyrstar  NYR.BR , which announced the closure of its
Middle Tennessee mines at the start of this month. 
    The market could afford to be sanguine about the
accumulating cuts to mine supply, knowing that the giant Ozerny
mine in Russia was just about to enter production. 
    Ozerny, also known as Ozernoy, has only just started ore
production with processing operations due to ramp up in the
first quarter of next year. 
    It is designed to churn out around 345,000 metric tons a
year of contained zinc, making it the single largest addition to
zinc mine supply in 2024.     
    This week's blaze leaves a question-mark as to whether there
will now be a delay to that time-table. The company said it is
still evaluating the extent of the damage.
    But what was previously an over-supplied zinc mine pipeline
is starting to look a lot thinner.  
    
    FALLING TREATMENT CHARGES
    The cumulative loss of zinc mine production has already made
an impact in the raw materials segment of the supply chain. 
    Smelter treatment charges, the fee for converting
concentrates into refined metal, have been falling for several
months in reaction to a tightening concentrates market. 
    Spot treatment charges were last assessed by Fastmarkets at
$70-110 per metric ton, the lowest since January 2022 and a long
way off this year's benchmark of $274 per ton. 
    The 2023 benchmark was the second highest in a decade and
reflected a large surplus of concentrates after a series of
smelter problems in 2022. 
    Chinese operators have since largely absorbed that surplus.
Imports of zinc concentrates hit a record 4.1 million metric
tons last year and they were up another 23% year-on-year in the
first nine months of this year. 
    
    HIGHER PRICES
    Chinese smelters have unsurprisingly been lifting run-rates
aggressively.     
    National refined zinc output is expected to grow by 6.7%
this year and another 4.1% next year, according to the
International Lead and Zinc Study Group, which is forecasting
big surpluses of refined metal in both 2023 and 2024. 
    It's that weight of excess metal that depressed the zinc
price over the summer months, even if the surplus isn't obvious
from low visible exchange stocks.
    However, it's now clear that the price had fallen
sufficiently far into the cost curve to force a growing number
of producers to throw in the towel. 
    The recent string of mine curtailments has placed a floor
beneath the market and the LME three-month metal has now rallied
over 17% from its May low point. 
    How much further it might recover will depend in large part
on how quickly the Ozerny complex can resume start-up operations
after this week's blaze. 
    
    The opinions expressed here are those of the author, a
columnist for Reuters
 

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Low LME zinc price leads to string of mine closures    https://tmsnrt.rs/3MCpx0f
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 (Editing by David Evans)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter
https://twitter.com/AndyHomeMetals))