RE:RE:Andy Home on Zinc Supply Yes, higher energy prices are driving zinc higher. Smelters are cutting back production but it remains to be seen just how temporary this dynamic is and how long it will last.
Coming out of the covid recession increasing economic activity should take care of zinc demand and absorb any surpluses. Spot zinc and warehouse inventories track this pretty well.
LME warehouse Inventory drawdowns/increases are posted daily at Kitco. Shanghai numbers are available but less trustworthy IMHO.
The new mines will be profitable but we won't know by how much until next may or june when 2022 Q1 earnings report. At $1.60+ zinc they will be profitable...hugely i expect. Right now Glencore is booking these profits.
Regardless of all this uncertainty I'm warming up to the deal largely because of the conceptual leap forward by SCZ mgmt it evidences. They are willing to roll the dice. Finding out everything we need to know by next may/june is kind of sobering to contemplate--we'll be largely in the dark for six months.
MacRellen wrote: I wonder to what degree the recent surge in zinc prices will benefit the miners - what they gain in price may be partly lost in volume if smelters continue to operate at reduced capacity.
To explain my thinking:
Miners produce zinc concentrate, which is then sent to smelters, refining it into sellable zinc.
Refiners reduce zinc production due to high electricity prices. This results in lower supply of refined zinc, pushing prices upward.
Miners still produce the same amount of zinc concentrate as before, so stockpiles of zinc concentrate will go up. And the volume of refined zinc that they sell, will go down, as long as smelters operate at reduced capacity.
When smelters eventually operate at full capacity again, there will be an overabundance of zinc concentrate - at least if they continue to operate at reduced capacity for a long time. What will that do to prices?
OTOH, the reduction in smelting will probably be short lived. If zinc prices increase, the smelters will increase their smelting if the price increase is enough to offset increased electricity costs.
And the article also points to an increase in demand, surpassing expectations this year, so that is promising.