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Zinc

Zinc market

Zinc outlook

Following the results of 2019, the average cost of zinc at LME decreased by 13%, to $2,546 per ton compared to 2018. In Q4 2019 high volatility of quotations was observed. The cost of metal rose to $2,600 per ton amid low LME stocks and expectations of a "first phase" trade deal between the US and China. In addition, zinc quotations were positively impacted by reports of the suspension of Vedanta's zinc mining operations in Namibia (90 kt of zinc in concentrate) and the closure of the Nyrstar zinc mine in Canada (24 kt of zinc in concentrate).

Starting from mid-November 2019, zinc quotations went down, which was facilitated by such factors as increased global metal supply and possible difficulties in trade negotiations between the United States and China that may have arisen after political disagreements between the leaders of these countries over the demonstrators in Hong Kong.

In November Chinese zinc output reached new highs (531 thousand tons, 16% more than in the same period of 2018). Such an increase in production is primarily due to the availability of raw materials on the market at high rates for their processing. In January-November 2019 the country increased imports of zinc concentrate by 4.6%, to 1.3 million tonnes (in metal terms) compared to the same period of 2018. Chinese production of zinc concentrate for the same period increased by 1.3%, to 3.99 million tons (in metal equivalent). Average rates in China (zinc spot concentrate TC, CIF China, $/per tonne) for zinc concentrate processing reached a new high of $300 per ton at the end of December 2019, 36% higher than in the same period in 2018.

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Factors positively affecting the zinc cost:

- Low metal stocks at exchange warehouses.

- Growth of both developed and emerging economies. China's GDP in Q4 2019 accounted for 6%, and it totaled 6.1% for the year proving the expected range.

- Continued environmental restrictions in China and mines shutdown and bottlenecks in other countries.

- Increased zinc consumption in China due to implementation of infrastructure projects on construction of railways, airports, metro lines, etc.

- Easing tension over the trade war between the United States and China.

Factors with negative impact on the zinc cost:

- Move of the global zinc market from deficit into surplus (global zinc market surplus in 2020 will be 190 thousand tons);

- Growth of zinc mining and production in China supported by gradual replacement and renovation of obsolete zinc smelting facilities to meet new environmental standards.

- Slowdown in global economic growth due to trade "wars" between countries.

In the short-term outlook, the high volatility of prices will remain. Strict environmental controls in China, mines shutdown and outages in various regions of the world still decelerate the rapid growth of metal production keeping the global zinc market in deficit with low exchange metal stocks. However, the market will move to an oversupply. The estimated average cost of zinc in 2020-2021 will be about $ 2,300 - 2,400/t.

In the long-term outlook, the zinc prices are expected to average $2800/t. Shutdown of non-efficient operations at current low prices can move the zinc market upwards and further to allow equilibrium.

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Global zinc market indicators and forecast 

In the first 11 months of 2019 the global zinc market experienced deficit (170 ths.t).

Based on results of 2019 the deficit is expected to account for 180 ths. t, however 2020 will see oversupply of 190 ths. t.

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Zinc mining

Over the first 11 months of 2019 the global mined zinc production was 11.8 mln. t, that is 1.3% more compared to the same period of 2018. Such growth was backed by increase in zinc mine production in Australia up to 1.2 mln.t (+17%), Canada – up to 311 ths.t (+20%) and Africa – up to 468 ths. t (+21%).

China increased zinc mine production by 1.3% up to 3.99 mln. t, while the considerable expansion is limited by the applicable environmental requirements and high TC/RC index for zinc concentrate which reduces the mining companies income.

In 2019 Glencore produced 905 ths.t of zinc in concentrate, that is 4.4% more than in 2018. Such increase is led by re-commissioning of mines Lady Loretta (60-100 ths.t, Australia), Iscaycruz (180 ths t, Peru) and increased output at McArthur River (Australia).

New Century (Australia), after resuming operation in Q4 2019, produced 28.1 ths.t of zinc in concentrate to be the all-time high value after the re-commissioning. The company plans to produce 29-35 ths.t in Q1 2020.

At the end of 2019 KAZ Minerals reduced production of zinc in concentrate by 23%, down to 38.3 ths.t caused by production decline at Orlovsky mine due to mining at deeper levels under more difficult geological conditions.

In 2020 global mined zinc production is forecast to rise by 4.7%, up to 13.64 mln. t.

This year Australia is expected to considerably contribute to mine output growth by putting into operation Century (~150 ths.t) and Woodlawn tailing ponds. We also expect production escalation at Dugald River mine (250-270 ths/t of zinc in concentrate, MMG Limited), and Lady Loretta mine (Glencore). Mineral production is expected to drop in Peru, the USA, Eretria, Kazakhstan, Turkey and Europe (mainly affected by reduction in Finland and Ireland).

In 2020 production growth is forecast in India, Mexico and Portugal, backed by a number of projects and expansion of the existing capacity. Mine production is also expected to increase in China, Ireland, Iran and Namibia. Finland, Peru and USA will see decline.

Zinc production

Over the first 11 months of 2019 zinc production increased by 2.3% accounting for 12,4 mln. It was primarily driven by expending production in China (+7.5%, up to 5.6 mln. t), Mexico (+13%, up to 359 ths. t) and Peru (+8%, up to 327 ths.t).

During the reviewed period, Indian Hindustan Zinc (controlled by Vedanta) produced 691 ths. t of zinc, 5% less versus 2018. Such decline is associated with mine production drop in Q1 2019.

The Company plans to increase annual zinc production up to 1.5 mln. t by 2024. In March 2020 Hindustan Zinc will complete the project on output increase up to 1.2 mln.t per year.

At the end of 2019 Glencore reduced zinc production in Kazakhstan (Kazzinc*) by 14%, down to 172 ths.t, due to interruption in delivery of its own zinc concentrate caused by occupational safety investigation at Tishinsky mine, and shutdown of concentrator in Ridder through technical reasons. Output of the affiliated smelters (100% share) increased by 1% to total 805.7 ths.t.

Vedanta Zinc considers construction of a zinc refinery on the basis of its Gamsberg mine (110 ths. t of zinc in concentrate) in RSA. The refinery annual design capacity is 300 ths. t of metal. The construction is scheduled for about three years.

In 2020 the economic growth is estimated to be 3.7%, up to 13.99 mln. t. Further expansion of processing capacity is expected in China and India supported by availability of zinc concentrate.

In the current year, Europe will see drop of zinc production by 3.5% affected by reduced output of Nyrstar smelters in France and Netherlands. Capacity shrinkage is also expected in Australia, India and Canada.

In 2019-2020 Mexico will increase zinc production associated with the capacity expansion (by 120 ths.t, up to 350 ths. t) at Industrias Penoles in Torreon.

The USA also forecast production growth in 2020 backed by recommissioning by American Zinc Recycling (155 ths.t per year) in Mooresboro (North Caroline), in early 2020th.

* Kazzinc production values are given based on the share of Glencore. Kazzinc total zinc production in 2019 totaled 293.3 ths. t (-5% versus 2018).

Zinc Usage

Over the first 11 months of 2019 zinc usage remained practically at the same level of 12.6 mln.t. According to forecast, in 2020 global zinc usage will increase by 0.9%, up to 13.8 mln. t. Demand in China may increase by 1.2%.

In the USA usage will increase by 1.1%. In Europe usage will increase by 0.5%.

Main indicators of the Russian market

According to Rosstat, indexes of metallurgical production in 2019 increased by 0.6% vs 2018. Zinc unwrought production volume dropped by 18.8% based on results of the period under review.

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In the global zinc production (including zinc aluminum alloys) Russia accounts for 1.5%.

In 2019 Russian zinc production reduced by 19%, down to 207 ths. t versus 2018. Such decrease was led by shutdown of PAO «Elektrozinc» due to fire at the end of 2018. Moving of the Russian zinc market into deficit resulted in import surge and export reduction.

Zinc import within the period under review rose by 266%, up to 49.9 ths. t. Most of the zinc is imported from Kazakhstan (75%) Uzbekistan (14%). Zinc import from Kazakhstan in 2019 increased by more than 7 times, up to 37.6 ths., from Uzbekistan by 2%, up to 7.1 ths.t.

Zinc export decreased by а 82% to total 7.2 ths. t. Zinc was mainly delivered to Estonia (46% of the total export amount), Kazakhstan (19%) and the Republic of Belorus (14%). 

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In 2019 apparent zinc consumption in RF increased by 10% reaching about 250 ths. t. The imported zinc share in the consumption ramped up from 6% to 20%.

Growth in apparent demand is backed by increased consumption of zinc by operations manufacturing zinc coated rolled products, accounting for over 60% in the all-Russian zinc consumption. Thus, zinc coated sheet metal sales by major Russian metallurgical plants in 2019 rose by 3%, to 3.3 mln. t. Metallurgical plants report high demand on such goods on the domestic market from the automobile and construction industry.

In the future, domestic zinc demand can also be supported by the resolution of the Board of the Eurasian Economic Commission on December 3, 2019 to introduce anti-dumping duties on coated flat sheet products imported to the Eurasian Economic Union from China and Ukraine for a period of 5 years. The annual imports subject to restrictions is estimated at 400 ths. 

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