The poor performance of Chinese smelters and the closure of major zinc mines in the past two years have led to global and refined zinc inventories continuing to fall, says international commodities consultancy Core Consultants MD Lara Smith.
“Many smelters last year chose not to buy expensive concentrate, but instead to cut down on consumption rates and production. This was further exacerbated by environmental regulations in China, which resulted in smelter utilisation rates falling to its lowest level in five years.”
To understand the effect of these factors on the price for zinc, one needs to consider mine supply, the concentrate, compared with refined materials, Smith emphasises.
There was a shift in the zinc-concentrate market last year, from a deficit to a surplus, as a result of an increase in mine supply from countries such as the US, India and Australia, combined with a decrease in the output of smelters.
“In 2019, mine supply will outstrip refined production, which will lead to smelter surpluses, higher stocks and lower concentrate prices. Refined zinc, however, should realise higher prices,” says Smith.
Environmental regulations for China’s mining practices have been strengthened, with stern measures taken against environmentally harmful mining practices, resulting in the closure of 26 Chinese mines that began in 2016.
These crackdowns are still ongoing. Last year, inspectors shut down 11 mines, removing 4.5-million tonnes of China’s zinc mined output, a reduction of 11%.
Smith highlights the closure of two other major zinc mines that contribute to a combined, reduced production of 630 000 t/y. Australian base metals producer New Century Resources’ Century zinc, lead and silver mine, in Australia, closed in 2016, while zinc miner Vedanta Zinc International’s Lisheen mine, in Ireland, closed in December 2015.
Smith states that this has led to a 4% increase in zinc prices in less than three months from the end of 2017 to the end of the first quarter of 2018.
The price of zinc decreased by about 4% last year, after two years of growth, during which prices increased from an average of $1 468/t in 2016 to $3 200/t in 2017, an increase of 119%.
“In 2018, the price peaked in February at $3 528/t, and then fell sharply to about $2 300/t, but has been climbing since the start of this year and is already touching $3 000/t again,” she states.
Chinese mines have started to reopen since the second half of last year as they gain environmental approvals. Of the six largest mine operations, which increased mine supply by about 70 000 t over the past year, two-thirds of the materials are less desirable concentrates, adds Smith.
The option of blending less desirable concentrates is risky, as there is a chance of producing more deleterious elements, which is not cost competitive and, subsequently, could lead to more mine closures, she says.
Further, tropical cyclone Veronica, which hit Australia in March, also resulted in the suspension of certain mine operations in that country. This includes multinational commodity trading and mining company Glencore’s McArthur River mine, and the McArthur mine’s Bing Bong loading facility, in northern Australia. Glencore announced in March that the McArthur River mine and Bing Bong had returned to normal operations.
McArthur is the fourth-largest zinc mine in the world in terms of zinc production, producing more than 200 000 t/y.
In February, Vedanta Zinc International opened Phase 1 of the Gamsberg zinc mine with the aim of producing 4-million tonnes a year of ore from the openpit and 250 000 t/y of concentrate from the plant.
“This is significant and places the Gamsberg operations in the top ten list, in about sixth or seventh place in the world by volume output. If they manage to implement phases 2 and 3, taking output up to the 600 000 t mark then this places the operations in the top three by output,” she says.
“It’s great for South Africa, as the employment opportunity is around 3 000 people for the construction and then 700 to 800 at steady stage when it reaches full production.”
Smith states that factors, such as capturing market share, overcoming reputational risks as a new supplier, the country’s policies and the availability of power could determine the success of the project.
“Time will tell and we’ll have to gauge this probability after the elections.”
Opportunities in Zinc Batteries
Batteries that use zinc for stationary energy supply could impact on zinc demand, says Smith.
Zinc has been used as a battery metal for longer than lithium-ion batteries have. Before alkaline batteries replaced zinc batteries, zinc carbon dry cells were the first disposable batteries to be used with the first portable electronics.
“Today, these batteries are still cost effective, but the amount of zinc required is small. One of the discussions for battery demand growth, apart from electric vehicles, is grid energy storage. One possibility is the zinc-air battery,” she says.
While significant research and development over the past 20 years has been aimed at reducing the cost of lithium-ion batteries, that of zinc-air batteries, however, is just starting, according to Smith.
“Companies such as US energy solutions provider EoS Energy Storage offering a zinc-based battery for delivery by 2022 at $95/kWh in one cycle starts to put zinc at the lower end of the cost curve.”
She points out that there will most likely always be more than one battery technology, as there will be market share for these technologies, but maintains that zinc-air batteries look more promising and cost effective than vanadium-redox for grid energy battery applications, particularly when the rising price of ferrovanadium is taken into account.
Other markets that will be important for zinc are those of the infrastructure development and construction industries, as 25% of zinc supply is used in infrastructure development and 21% in construction.
Smith states that, owing to China’s rapid urbanisation, the country uses 60% of zinc supply, which is expected to remain steady for now. India is expected to follow China in terms of infrastructure development, with the rest of the Asian region following the two countries.