Zinc prices solid in European winter due to likely smelter closings

A worker adjusts machines that are used to extract lead and zinc from ore in a smelter of Lumbung Mineral Sentosa in the reign of Bogor south of Jakarta, Indonesia, July 19, 2014. REUTERS / Darren Whiteside / File Photo

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LONDON, December 3 (Reuters) – Zinc prices are expected to remain stable over the coming months as electricity costs may rise sharply, causing further disruption to smelters, and supply and inventory remaining tight.

Benchmark zinc prices on the London Metal Exchange have fallen about a fifth since they hit a 14-year high in mid-October after smelting shutdowns in Europe turned out to be less severe than expected.

However, since the beginning of the year, the price of zinc, which is mainly used to galvanize steel, has risen by 16%.

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LME three-month zinc hit a 14-year high in mid-October

Prices soared after Nyrstar (NYR.BR) announced it would cut production at its three European zinc smelters by up to 50%, but customers have received ample supplies so far, said Helen O’Cleary, senior analyst at the consulting firm CRU.

“Of course there is still potential for cuts as European electricity prices remain high and will likely continue to do so over the winter months,” she added.

CRU has budgeted 40,000 tonnes of disruption outside of China in the fourth quarter and expects LME prices to rise from $ 3,190 on Friday lunchtime to an average of $ 3,500 per tonne next year.

Glencore (GLEN.L) announced last week that it would cease zinc operations at its Italian plant with 100,000 tonnes per year due to high electricity prices. Continue reading

The Bulgarian hut in Plovdiv is also closed.

European electricity prices have soared to multi-year highs this year and are unlikely to fall before the end of the year, analysts say. Continue reading

The French spot electricity prices have risen by more than 500% so far this year

Most European smelters use energy-intensive electrolysis and smelter costs have increased nearly $ 900 per tonne based on peak electricity prices this year, Bank of America’s commodities strategist Michael Widmer said in a press release.

The low treatment fees that smelters charge for processing concentrates also have a negative impact on the smelter’s bottom line.

The profitability of zinc smelters is depressed by low treatment fees

JP Morgan expects a refined zinc deficit of about 50,000 tons this year and 34,000 tons in 2022 at average prices of $ 3,400 per ton in the first quarter of next year, it said in a release.

Inventories are at a low level so that only a small buffer remains in the event that a new wave of smelter shutdowns hits the industry in winter.

LME stocks have almost halved since April, while values ​​on the Shanghai Futures Exchange are down 43% since March.

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LME stocks have almost halved since April

Reporting by Eric Onstad; Additional coverage from Eileen Soreng in Bengaluru; Adaptation by Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.

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