Supply and demand factors to fuel wild price ride
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Thursday January 31 2008
Zinc prices have enjoyed a wild ride from $750 (€507) per tonne in mid-2003 to a peak of $4,608 (€3,117) per tonne in November 2006. It is currently trading at about $2,750 (€1,860) a tonne.
Price volatility has been boosted by the participation of private investors in the commodities market and seasonal demand and supply factors.
Global demand has been growing at an average of around 5pc for the past several years or about 550,000 tonnes of new metal annually. Most of the demand comes out of China where annual growth in consumption is around 9pc, so demand for the metal should continue to grow.
On top of this, the huge Chinese appetite for the metal is being mirrored in India and these two should more than compensate for the slow decline in demand which is being experienced in the US.
Experts believe that a global growth rate of 4-5pc appears sustainable over the next several years despite obvious economic slowdown in developed world economies.
One of the major problems facing the industry is the pending closure of some major mines and at current rates these will not be replaced. If this is the case then shortages will start to emerge from about 2012 and a sustained period of high prices is likely.
The size of this supply deficit will be determined by the ability of smaller companies like our own Minco and Connemara Mining to finance new mines.
Many of the projects in the development pipeline are owned by junior companies like these two and as most have no revenue stream, they will rely on industry majors for development funding.
As a result it is likely that several of the new projects, including prospects like Pallas Green in Limerick will end up in the hands of the big zinc companies who have the balance sheets to finance this badly needed new production.
The bottom line for both Irish miners and investors is that a lack of quality zinc projects in the development pipeline means we are headed for a sustained period of high zinc prices.
