Nyrstar's shut Dutch smelter invigorates zinc bulls

Nyrstar NV

17/08/2022 17:04

* Energy around 80% of zinc production costs - Macquarie
    * Biggest impact will be on LME zinc stocks - Bank of
America

    By Pratima Desai
    LONDON, Aug 17 (Reuters) - Expectations of deeper production
cuts in Europe, shortages and dwindling stocks after high energy
costs forced Nyrstar to shut its zinc smelter in the Netherlands
have bolstered zinc's price prospects.
    Higher prices of zinc, used to galvanise steel, mean higher
costs for steel makers and for steel consumers in the auto,
construction and infrastructure industries.
    Nyrstar's  NYR.BR  decision to close the Budel smelter drove
zinc on the London Metal Exchange spike to $3,819 a tonne on
Tuesday, the highest since June 9 and a 24% gain since mid-July.
It hit a record $4,896 a tonne in early March.  urn:newsml:reuters.com:*:nL1N2ZS0K7
    Prices jumped last week after Glencore  GLEN.L , Europe's
biggest zinc producer, said high power prices made production
"very challenging".  urn:newsml:reuters.com:*:nL1N2ZL0VR
    Last year, soaring power prices prompted Nyrstar to cut
output by up to 50% at its three European zinc smelters - Budel
in the Netherlands, Balen in Belgium and Auby in France.
    Budel with capacity to produce 315,000 tonnes will be on
care and maintenance from Sept. 1.  urn:newsml:reuters.com:*:nL1N2ZS0K7
    "The squeeze on European zinc smelter margins means further
cuts in Europe and shortages. Prices are heading up," a
portfolio manager at a natural resources fund said. 
    According to Macquarie analysts, energy accounts for around
80% of the cost of producing zinc in Europe compared with
historical averages of 50%.
    Europe is estimated to produce up to 15% of global zinc
supplies estimated at around 14 million tonnes this year.
    But much of this production is loss-making, which already
has led to annualised output cuts of 140,000-170,000 tonnes.
    "Zinc output losses in Europe have outpaced demand losses.
Traders will be forced take metal out of the LME system. This is
where it will have the biggest and most immediate impact," said
Bank of America analyst Michael Widmer.
    Zinc stocks in LME registered warehouses, at 75,000 tonnes,
have plummeted by 75% since April due to draws to meet deficits.
Cancelled warrants - metal earmarked for delivery - at 35%
suggest another 26,450 tonnes is due to leave the system.
    The chances of top producer China making up the shortfall in
Europe are low.
    "The zinc market in China has tightened considerably in
recent months due to underwhelming refined production during the
first half of 2022 and sluggish zinc imports from the rest of
the world," analysts at Citi said in a note. 
    "This reality suggests China lacks meaningful zinc export
capacity to relieve ex-China shortages. Port congestion and high
freight costs will continue to frustrate and delay zinc
shipments."

 (Reporting by Pratima Desai; editing by Barbara Lewis)
 ((pratima.desai@thomsonreuters.com; +44 207 513 5681;))