Zinc

Markets

Zinc

Supply of refined zinc outpaced global demand during 2008 for the first time since 2003. LME warehouse zinc metal stocks rose by 165,000 tonnes to 253,475 tonnes. Nonetheless, at the end of the year, exchange zinc stock levels were still relatively low by historical standards, representing only eight days of global consumption. The average LME zinc price remained above $2,000 per tonne during the first five months of the year, but fell steeply in the final quarter to end the year at $1,120 per tonne. The average price for the year was $1,870 per tonne, 42% lower than the prior year average of $3,251 per tonne.

Global zinc demand softened during the year and totalled 11.4 million tonnes in 2008 as consumer and business spending fell markedly in the main zinc-consuming industries of construction and vehicles in the second half of the year. While demand continued to grow in China, this was offset by weakened demand in the rest of the world, particularly in Western Europe and North America.

Global refined zinc production grew in 2008 by approximately 3% to 11.5 million tonnes, with most of the increase from smelters in China and India. During 2008, margins were squeezed as the zinc price fell faster than costs. By the end of the year a significant number of smelters had announced production cuts, most of which came into effect in early 2009.

In 2008, China’s smelters imported a record amount of zinc-in-concentrate, nearly 900,000 tonnes, as its domestic mine growth was cut back in response to weaker zinc price and negative margins. Mined zinc production in China contracted by almost 2% year-on-year. In the final quarter of the year, other mine production cuts occurred, mainly in North America and Western Europe. Overall, global mined zinc production grew by just over 5% to 11.5 million tonnes, mainly from Australia, India, Peru and Bolivia.

The zinc concentrate market weakened in 2008 as smelter production grew at a lower rate than mined production. Benchmark treatment charges increased to $300 per tonne on a $2,000 per tonne zinc price basis compared to $300 per tonne on a $3,500 per tonne zinc basis in 2007.

Zinc ‘jumbo strip’ at the dock of San Juan de Nieva, Spain, the world’s largest zinc smelter.

Outlook

In response to low prices, 1.0 million tonnes of zinc curtailments have been announced for 2009, representing over 9% of planned production levels prior to the economic downturn in the second half of 2008. Further mine cutbacks are likely if zinc prices remain at low levels. In the medium to long term, as the stimulus plans of the major economies take effect, global zinc consumption is expected to increase from rising demand from the galvanised sheet sector, fuelled by vehicle production, infrastructure projects and consumer goods.

Lead

Global lead consumption is estimated to have increased in 2008 by approximately 3% compared to the previous year. China continues to be the driving force behind global growth, with consumption increasing by 14% or an additional 371,000 metric tonnes year-on-year, driven primarily by demand for stationary, automobile and electric-powered bicycle batteries.

In 2008, global refined lead production rose by 5% to 8.5 million tonnes, driven primarily by higher production from China and other Asian countries. As a result, global demand and supply for refined lead remained broadly balanced, ending the year with a small surplus of approximately 60,000 metric tonnes.

Global mined lead production increased by 7% in 2008 to 3.6 million tonnes. The main contribution to the increase came from Canada, China, Russia and Bolivia. Mine production is expected to remain flat in 2009 as a result of mine production cuts in response to low prices.

LME stocks fluctuated during the year between a low of 40,950 metric tonnes and a high of some 101,900 metric tonnes, ending 2008 at 45,150 metric tonnes, representing two days of global consumption.

The average LME monthly cash price for lead started the year at $2,608 per tonne, peaking in February at $3,080, before falling to a low of $880 per tonne in mid-December. The average LME cash price for 2008 was $2,084 per tonne, 20% lower than in 2007.

Outlook

Lead market conditions are expected to remain challenging in the first months of 2009 as the weak automotive sector reduces demand for batteries although the market for replacement batteries is expected to remain relatively robust. Recent mine and refined metal production cuts and historically low levels of LME stocks should help to offset demand weakness and generate a market surplus for the remainder of the year.