Post by
ilikezn on Oct 05, 2017 8:09pm
Zinc Market Tightest in Years
Interesting read. I like what that means for quality zinc projects.... Canada Zinc Metals Corp. (TSX.V : CZX) -- Zinc Market Tightest in Years Please find below for your information a Bloomberg article dated October 5, 2017. LONDON Two years ago, the worlds largest zinc miner needed to cut production to turn around a bloated market. Now, supply is the tightest in years and Glencore wants to get bigger. Glencore curtailed zinc output at mines in Australia and Kazakhstan to solve a supply overhang and lift prices off six-year lows. The company succeeded the zinc market is in deficit, prices are at a decade high and inventories are getting scarce. Late Tuesday, the mining giant took its wager further by announcing plans to increase its stake in Latin Americas largest zinc miner, Volcan Cia. Minera SAA. The company reached an agreement to acquire 27% of Volcans Class A voting shares for $531-million and may increase its stake even further via a public tender. This is a clear vote of confidence in the zinc market from Glencore, Paul Gait, an analyst at Sanford C. Bernstein in London. Its about control and discipline, about knowing when to take tons off the market and when to bring them back on. Theres no point having control if youre going to be all floppy and useless with it. Throughout the market, there is plenty of evidence of Glencores discipline. The shutdowns removed 3.5% of global mine production, and theres no sign the company is itching to bring it back soon. Glencore will likely bring supply back to the market in small increments, starting in 2018, according to Vivienne Lloyd, an analyst at Macquarie Group in London. The miner will aim to make the softest impact possible on the tighter market it has helped to create, she said. Zinc prices have soared more than 90% to $3,277 a metric ton since the production cuts were announced in October 2015, and Chinas crackdown on pollution and mine safety also fuelled the advance. Last month, spot zinc traded at the biggest premium to futures in ten years, a condition called backwardation thats a red flag for demand overshooting supply. The supply pinch has been exacerbated by a dominant holder of physical LME inventories and spot contracts. One party controlled a position equal to 90% of the freely available zinc in London Metal Exchange warehouses on September 25. The following day, the LMEs Tom contract closed $15.84 above one expiring a day later, the biggest premium since 2015. The Tom-next spread, the gap between a contract expiring tomorrow and the next day, eased briefly as rules designed to prevent squeezes came into effect, but on Tuesday it tightened again, trading at a $14 premium. When theres a dominant position, the LME requires the company to cheaply loan out the metal, a way to bring supply back to the market. The exchange doesnt disclose the identity of the dominant trader. There are also signs of chronic supply constraints. Backwardations are seen through to the end of 2021 on the LME forward price curve, a sign of long-term shortage after years of mine closures and buoyant demand. Its nice to see a fundamental story playing out in this way, said Vivienne Lloyd, an analyst at Macquarie Group in London. The fact there are backwardations right along the curve is the strongest signal that the market is tight. CHINESE ARBITRAGE The physical market also points to scarcity. Shipping zinc to buyers in China has become more profitable as prices rallied on the Shanghai Futures Exchange beating gains seen in London and customers have accepted higher premiums covering the cost of physical delivery. In August, the arbitrage between Shanghai and London reached the highest in at least seven years, and Chinese zinc imports have risen in parallel as sellers chased higher profits. FALLING STOCKPILES A drop in Shanghai inventories also shows demand is exceeding supply in the worlds largest consumer market for zinc. LME stockpiles have also steadily declined, taking inventories on major global exchanges to the lowest since 2008. About 85% of LME stockpiles are in New Orleans, exacerbating the squeeze on overseas buyers, according to Michael Widmer, metals strategist at Bank of America Merrill Lynch. Despite the highest prices in years, miners are struggling to boost output, particularly in China, which historically was able to quickly adjust supply. Chinese production has been dented by tougher regulation, strengthening Glencores role as the swing producer, Widmer said. Global output has fallen short of three-year averages in six out of the seven months through to August, according to data from the World Bureau of Metal Statistics. Glencores aim was to create price support by clearing out surplus inventories, said Macquaries Lloyd. The point wasnt to see how quickly they could get zinc to $3,000. It was to clean up the market. About Canada Zinc Metals Corp. (TSX.V : CZX ; Frankfurt: A0RAQJ ) Canada Zinc Metals is a mineral exploration company focused on unlocking the potential of a future long life mining district in British Columbia, Canada. The Company is the dominant land holder in the Kechika Trough, a world class mineral belt, which hosts in excess of 80 million tonnes of base metal resources. Canada Zinc Metals owns a total of 79,780 hectares in 230 mineral claims which extend northwestward from the Akie property for a distance of 140 km. The Company has outlined a NI 43-101 compliant mineral resource at its flagship Akie property, including an indicated resource of 19.6 million tonnes grading 8.2% zinc, 1.6% lead and 13.6 g/t silver (at a 5% zinc cut-off grade) and an inferred resource of 8.1 million tonnes grading 6.8% zinc, 1.2% lead and 11.2 g/t silver (at a 5% zinc cut-off grade). Using this estimate, the deposit contains 3.54 billion pounds of zinc, 685 million pounds of lead and 8.6 million ounces of silver in the indicated category, and 1.2 billion pounds of zinc, 207 million pounds of lead and 2.9 million ounces of silver in the inferred category (at 5% zinc cut-off). The deposit remains open along strike and at depth. Tongling Nonferrous Metals Group, Jintuo (Canada) Investment Co. Ltd, Teck Resources and Korea Zinc are significant shareholders of the Company. Teck Resources and Korea Zinc have also entered into an option agreement with Canada Zinc Metals in relation to 3 of the Company's Kechika Regional Properties.