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Nyrstar Sees High 2013 Smelting Fee on Zinc Concentrate Glut

Oct. 24 (Bloomberg) -- Nyrstar NV forecast higher fees to process zinc, pushing the shares of the largest producer of the refined metal up the most in a month in Brussels trading, as supply of the concentrate used in manufacturing exceeds demand.

“We estimated in storage around the world there’s about 500,000 tons or more of zinc in concentrate,” Chief Operating Officer Greg McMillan said today on an investor call. “There should be a movement up in terms of treatment charges” in 2013.

The charges that mining companies pay to have their semi-processed ore turned into finished metal settled this year at $191 a metric ton, based on a zinc price of $2,000 a ton, below the $229 in 2011 and zinc cost of $2,500. Negotiations for next year’s settlement are scheduled to conclude in February.

Nyrstar advanced 5.3 percent, the biggest gain since Sept. 14, to 4.937 euros at the close of trading in Brussels.

Korea Zinc Co. is among smelters in annual talks with mine operators such as Teck Resources Ltd. at the International Zinc Conference on treatment charges that set an industry benchmark.

While miners last year convinced smelters there was a lack of concentrate because of falling spot treatment rates in China, Nyrstar’s estimate of a surplus was proved right, McMillan said.

“There’s definitely not a shortage,” he said. “It’s very hard to find warehouse space to put concentrate. If you go to Peru there’s a lot of concentrate in stock at the moment.”

The Chinese market shouldn’t be considered when determining supply and demand because imports have declined to less than 1 million tons from about 2 million tons in 2009, he said.

Artificial Market

“It’s a very artificial market and it’s not a market that actually provides the insight to the fundamentals of the supply and demand balance,” McMillan said. “The spot market in China now is a very small market compared to the overall market and is controlled very cleverly by a couple of smart traders.”

Nyrstar told concentrate suppliers about its estimates in anticipation of settling higher fees for next year, he said. The company today maintained its annual guidance for total zinc output after production slid 5 percent in the third quarter.

Zinc metal production declined to 266,000 tons in the July-September period from 279,000 tons in the previous quarter, the Balen, Belgium-based company said today in a statement.

Nyrstar, which said year-to-date output is “in line” with 2011, forecast zinc production this year of about 1.1 million tons, compared with 1.125 million tons last year.

To contact the reporters on this story: Jones Hayden in Brussels at jhayden1@bloomberg.net; Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net; John Viljoen at jviljoen@bloomberg.net

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