Noranda Income Fund Unit T.NIF.UN

RE:Zinc Rallies on Mine Disruption; Who has Leverage?

[Finalsay]

Who has leverage is an important question to ask when trying to forecast refiner/miner outlooks. For example, the zinc TC market in 2017 and 2018 strongly favored miners, not smelters, due to tightening zinc concentrate supply from miners and growing Chinese smelter refining capacity. This created an environment where miners were able to dictate the terms (they had the leverage). Following basic supply and demand market dynamics, it was inevitable that zinc concentrate supply would start to increase, and we saw how that played as the leverage shifted to refiners and TCs increased significantly from  . This flash report is all about how current market dynamics and events will affect the negotiation between miners and smelters. The main takeaways are:

1) The zinc concentrate market has tightened sharply, driving (plunging) spot TCs well below the 2020 benchmark TC. This stark contrast suggests that leverage has shifted from refiners/smelters to the miners.

2) The report also notes that despite forecasts of a concentrate supply deficit, the refined market is actually in surplus. It also notes that there is most likely more zinc metal inventories than what can be seen in LME inventories. They forecast zinc price appreciation, but clearly with caution due to the forecasted oversupply dynamics. 

As noted in the previous response, zinc price increases are good for Noranda as free metals are one of its main revenue sources.