Zinc Output Sliding in Japan to Send Imports to 11-Year High

Zinc Output in Japan to Drop, Doubling Imports
Zinc inventories in warehouses monitored by the London Metal Exchange rose to a 16-year high on June 15, led by increases in Port Klang, Malaysia and Chicago. Photographer: Fabrice Dimier/Bloomberg

June 23 (Bloomberg) -- Zinc production in Japan will slump by at least 9 percent this year after the March earthquake, doubling imports to the highest level in 11 years, said the country’s top producer of the metal used to galvanize steel.

The world’s third-biggest economy will likely produce about 542,000 metric tons, down from an estimate of 597,000 tons before the disaster, said Nobuyuki Nakamoto, general manager at Mitsui Mining & Smelting Co.’s zinc business. The country may import as much as 80,000 tons this year, the highest level since 2000, he said in an interview in Tokyo.

Surging imports may support global prices. Goldman Sachs Group Inc. recommended in May that investors buy the metal, predicting demand will outpace supply next year. Zinc is the second worst-performing metal on the Standard & Poor’s GSCI Index of 24 raw materials this year, declining 10 percent as the International Lead & Zinc Study Group forecasts a surplus.

“Output may fall below 540,000 tons as the latest estimate doesn’t include any additional impact from blackouts in the summer,” Nakamoto said on June 21. That would be the lowest level since 1967, according to Japan Mining Industry Association data. The country produced 574,000 tons last year, he said.

Zinc will average $2,475 a ton in 2011 and $2,500 in 2012, said Michael Widmer, head of metals research at Bank of America Merrill Lynch in London, who was the second-most accurate forecaster for the metal for the eight consecutive quarters ended March 31, according to Bloomberg data. Three-month zinc averaged $2,346 a ton this year on the London Metal Exchange and traded at $2,238 a ton at 6:05 p.m. in Tokyo.

Future Deficit

“There is no acute shortage of refined zinc at the moment,” Widmer said on June 20. “The base case remains for mine supply growth to fade out over the next couple of years, with deficits on the refined market possible from 2013.”

World supply will outpace demand this year by 161,000 tons compared with a surplus of 264,000 tons last year, according to the International Lead & Zinc Study Group. Last year was the fourth consecutive annual surplus.

Zinc inventories in warehouses monitored by the London Metal Exchange climbed to a 16-year high on June 15, led by increases in Port Klang, Malaysia and Chicago.

The country imported 988,000 tons of zinc concentrate last year, buying 284,000 tons from Peru, 250,000 tons from Australia and 220,000 tons from Bolivia, according to the Japan Mining Industry Association. The country has imported ore to make refined zinc since 1951, according to the association.

Damaged Factories

Japan was Asia’s third-biggest zinc consumer after China and South Korea in 2010, according to the International Lead & Zinc Study Group. Demand was 516,000 tons last year, 4 percent of the world’s total 12.6 million tons.

The temblor and tsunami on March 11 damaged factories, including metal smelters and refineries, and knocked out power plants. Mitsui Mining restarted its Hachinohe zinc smelter in Aomori prefecture, northern Japan, on June 10. Toho Zinc Co. said June 3 that it resumed operations at its Onahama plant.

Consumption in Japan may decline to 516,000 tons from an earlier estimate of 526,000 tons before the disaster, Nakamoto said. Automakers, which halted production in March, will likely increase output later this year after resuming full operations this month, he said.

“If reconstruction begins later this year after removing debris completely in the tsunami-hit regions, we may see an increase in demand above the estimate,” he said.

Japan’s imports are projected to jump to 70,000 tons to 80,000 tons this year, after a record monthly import of 31,000 tons in April, while exports may decline to 77,000 tons from an earlier estimate of 90,000 tons, Nakamoto said. In 2010, Japan imported 31,856 tons, while exporting 97,745 tons.

“If this year’s imports climb above exports, it would be the first time Japan will be a net importer since 2000,” he said.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.