Zinc supply hit by Teck turmoil
30th August 2019
Resources Rising Stars
Western buyers may turn to China for additional zinc supplies after Teck Resources, one of the world's largest producers of the base metal, was forced to cut production from one of its refineries (reports The Australian Financial Review).
The forecast cut of between 20,000 tonnes and 30,000 tonnes from the Canadian company's Trail refinery comes at a time when the International Lead and Zinc Study Group has identified a 134,000-tonne deficit in the global refined zinc balance.
Zinc prices have been under pressure despite the deficit amid concerns about increased supply from China's smelters. The three-month zinc price traded on the London Metals Exchange has fallen from around $US2900 a tonne in April to $US2275 a tonne – in line with prices last seen in 2016.
Teck's output cut is expected to tighten supplies of the metal in North America and lift physical premiums, or the prices paid for short-term deliveries of the metal. It is expected that inventories in Chinese warehouses may be diverted into the global market.
"We see this is likely to encourage the short-term divergence of market strength between China and ex-China markets," said ING senior commodities strategist Wenyu Yao.
"And that may continue to encourage stock outflows from China bonded warehouses. That said, exports out of China bonded warehouses may potentially act to offset the impacts from Trail's disruption loss".
China has been ramping up its exports of the metal. Shipments of refined zinc increased 92 per cent month-on-month to 16,000 tonnes in July, with Taiwan and Malaysia – which both have LME approved warehouses – being key destinations, according to ING's analysis.
Earlier this month, Nyrstar shut down its zinc-lead smelter furnace in Port Pirie in South Australia. The furnace is expected to be down for weeks.
Zinc prices have lagged behind those of some other base metals. Nickel has performed strongly in recent months on fears Indonesia, a major producer, may bring forward a ban on ore exports.
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